gary-weiss.com

Publishers Weekly on Ayn Rand Nation

2012-01-18T14:58:00.005-05:00

Publishers Weekly has a review on Ayn Rand Nation, and it's a very kind one.

A "riveting and disturbing inquiry into Ayn Rand’s widespread influence on American economics and politics," PW says.

The full review can be read here.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Ayn Rand Nation in Kirkus

2012-01-04T13:25:00.004-05:00

Ayn Rand Nation has gotten its first review, in Kirkus Reviews, and I have to say, I'm pretty thrilled. It's not online yet, so I've copied it below:

Weiss (Wall Street Versus America, 2006, etc.) jumps headfirst into the complex socio-cultural maelstrom that was Ayn Rand, spotlighting her allies, enemies, nemeses and acolytes.

The author has been in the trenches of financial reportage since before Black Monday 1987, examining corruption, mob involvement, takeovers, bailouts, regulatory scandals and a long list of game-changing power plays in every corner of the stock market. Here the author looks at Rand’s immense influence on a variety of sectors of American life, especially politics and economics. If you thought her renowned novels Atlas Shrugged and The Fountainhead had been analyzed under every possible microscope, think again. Intrigued by a 1974 photo depicting Rand with Alan Greenspan and President Ford in the White House, Weiss embarks on a quest to excavate the oft-shifting strata of Rand's political doctrine, Objectivism, which she deemed “a philosophy for living on earth," starting with her infamous writings. The love-hate lens through which our society continues to view her self-interested, capitalist canon is, in Weiss' dogged hands, meticulously eye-opening—yet it remains confounding to conservatives, libertarians and liberals alike. Anointing her "the godmother of the Tea Party,” Weiss argues that Rand's influence on Greenspan, Timothy Geithner, Ben Bernanke and other major players in the contemporary financial and legislative landscape is significant; she suggests that the anti-government seeds she planted may now be taking root. Weiss writes, "[s]uch is the Ayn Rand vision of paradise: an America that would resemble the lands from which our ancestors emigrated, altruism confined to ignored, fringe texts, grinding poverty and starvation coexisting alongside the opulence of the wealthy."

A scrupulous and sobering investigation, vital for our times.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

More on Ron Paul's Crackpot Campaign

2011-12-28T17:44:00.004-05:00

My Street.com column today again explores the Ron Paul phenomenon, this time dealing with the crackpot character of both the candidate and his supporters.

After I filed the column I found some more evidence - not that any was needed - on just how off-the-wall Paul truly is.

Back in 2004 he was the only member of the House of Representatives opposing a resolution commemorating the 40th Anniversary of the passage of the Civil Rights Act of 1964.

I'm replicating his floor comments in full below:

Mr. PAUL. Mr. Speaker, I rise to explain my objection to H. Res. 676. I certainly join my colleagues in urging Americans to celebrate the progress this country has made in race relations. However, contrary to the claims of the supporters of the Civil Rights Act of 1964 and the sponsors of H. Res. 676, the Civil Rights Act of 1964 did not improve race relations or enhance freedom. Instead, the forced integration dictated by the Civil Rights Act of 1964 increased racial tensions while diminishing individual liberty.

The Civil Rights Act of 1964 gave the federal government unprecedented power over the hiring, employee relations, and customer service practices of every business in the country. The result was a massive violation of the rights of private property and contract, which are the bedrocks of free society. The federal government has no legitimate authority to infringe on the rights of private property owners to use their property as they please and to form (or not form) contracts with terms mutually agreeable to all parties. The rights of all private property owners, even those whose actions decent people find abhorrent, must be respected if we are to maintain a free society.

This expansion of federal power was based on an erroneous interpretation of the congressional power to regulate interstate commerce. The framers of the Constitution intended the interstate commerce clause to create a free trade zone among the states, not to give the federal government regulatory power over every business that has any connection with interstate commerce.

The Civil Rights act of 1964 not only violated the Constitution and reduced individual liberty; it also failed to achieve its stated goals of promoting racial harmony and a color-blind society. Federal bureaucrats and judge's cannot read minds to see if actions are motivated by racism. Therefore, the only way the federal government could ensure an employer was not violating the Civil Rights Act of 1964 was to ensure that the racial composition of a business's workforce matched the racial composition of a bureaucrat or judges defined body of potential employees. Thus, bureaucrats began forcing employers to hire by racial quota. Racial quotas have not contributed to racial harmony or advanced the goal of a color-blind society. Instead, these quotas encouraged racial balkanization, and fostered racial strife.

Of course, America has made great strides in race relations over the past forty years. However, this progress is due to changes in public attitudes and private efforts. Relations between the races have improved despite, not because of, the 1964 Civil Rights Act.

In conclusion, Mr. Speaker, while I join in sponsors of H. Res. 676 in promoting racial harmony and individual liberty, the fact is the Civil Rights Act of 1964 did not accomplish these goals. Instead, this law unconstitutionally expanded federal power, thus reducing liberty. Furthermore, by prompting race-based quotas, this law undermined efforts to achieve a color-blind society and increased racial strife. Therefore, I must oppose H. Res. 676.

My Take on Fracking and Ron Paul

2011-11-29T18:32:00.006-05:00

I am definitely in red-line-crossing mode this week, as I generated two columns appearing today on the most divisive subjects in the land, Ron Paul and hydrofracking.

My Street.com column deals with fracking, which I view as a well-poisoning monstrosity, and I have an essay in Salon dissecting Ron Paul, whom I view as a fraudulent populist. Both columns are generating numerous comments and, in the case of Paul, fiery emails!

But I'm pleased to say that the Salon column has generated, so far, over a thousand Facebook recommendations, indicating that the vast majority of readers tend to like the piece. So far, 630 comments, including many from peeved Paul-ites. Golly!

Not to worry. If you hate (or love) Paul there will be more to hate (or love) from me in the future, as I am becoming a regular contributor to that estimable online periodical. Ditto for fracking, a subject that I think will be fodder for future columns. So stay tuned.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

The Tangled History of Occupy Wall Street 's Nemesis

2011-11-21T16:45:00.020-05:00

Wall Street heroes are anti-naked shorting conspiracy theorists

There's an intriguing item in Business Insider today about two "heroes of Wall Street": John and Derek Tabacco, who counter-demonstrated against Occupy Wall Street last week, holding up green posters that read "Get A Job" and "Occupy A Desk!"

"They then declared their movement the 'Wall Street Freedom Fighters.'", Business Insider pointed out. Their two-man counter-demonstration was first reported by Business Insider and Salon.

The Tabacco brothers operate something called LocateStock.com. They are also leading "naked short selling" conspiracy theorists, who have been quoted all over the media, including by the estimable (and, on naked shorting, distressingly gullible) Matt Taibbi on the subject of this ferocious but largely imaginary menace to the financial markets.

What Taibbi didn't point out, in quoting Tabacco expounding on the subject, is that John Tabacco worked for the investor ripoff shop called First Hanover, as Salon has pointed out. He was barred from the securities industry for his activities there. Salon has previously reported the brothers' strange history in other areas. Kind of impacts on Tabacco's credibility, wouldn't you say?

John Tabacco's scuzzy background is not surprising. Naked shorting conspiracy theories were originally promoted by penny stock brokers, before being spread to the world at large by the ancestral bank roll of their friend and benefactor, Overstock.com CEO Patrick Byrne.

Byrne, an outspoken right-wing activist, foul-mouthed misogynist and campaign financier, has tried to link his nutty conspiracy theories to Occupy Wall Street, even though he is the living embodiment of everything OWS is fighting--and his conspiracy theories exonerate Wall Street banks for collapsing the market in 2008. Byrne has promoted his theories in tandem with the Tabaccos, promoting Locatestock.com on Overstock's website and on CNBC. In a bizarre incident in 2006, Byrne actually held up a sign naming LocateStock.com and a conspiracy-theory website during a CNBC appearance (above).

In addition to First Hanover, John Tabacco also was employed by Russo Securities and DH Blair, both notorious penny-stock emporiums. After his expulsion from the securities industry, Tabacco tooled around in various jobs before deciding to become an anti-nekked-shorting conspiracy theorist. At one point he was business partners with the worst SEC chairman in the history of the universe, Bush-appointed clown Harvey Pitt.

I've got to give the Tabaccos credit. At least they haven't tried to present themselves as friends of OWS, but rather as what they and the naked shorting conspiracists really are: shills for Wall Street, trying and failing to divert the public's attention from real issues and real problems.

The GOP Grapples With Ayn Rand's Atheism

2011-11-04T16:01:00.004-04:00

Not Ayn Rand's cup of tea

My latest post in the FrumForum describes how Ayn Rand's atheism is infecting the far right, the Tea Party movement and, through Ron Paul especially, Republican politics in general.

It's kind of a sneak preview of one of the themes that I explore in AYN RAND NATION: The Hidden Struggle for America's Soul, which will be published by St. Martin's Press on Feb. 28.

Given how fashionable Rand is in the GOP nowadays, her atheism is going to raise some thorny issues for the Republican Party. She repudiated not just belief in God but cherished Judeo-Christian moral tenets, including the desirability of altruism and help for the needy. Rand's Objectivism celebrates selfishness and promotes the belief that the poor need to rise up without relying on help from anyone.

Rand's celebration of individuality certainly has its place, but her influence on national politics is corrosive -- if, that is, you believe that government plays an important role in society.

Read more about it on the FrumForum, and feel free to plunge into the lively discussion taking place there.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Overstock.com Nears Default While Utah Media Sleeps

2011-10-31T10:11:00.023-04:00

The always-intriguing story of Overstock.com ratcheted up a notch on Monday, as word emerged on Sam Antar's blog that Overstock is on the verge of violating its debt covenants and is therefore close to default, This devastating news was buried in a footnote.

That's probably the best example I've found of the need to read the footnotes of financial statements. Significant news is often buried therein. In this case, the news is so significant that I wonder if perhaps there may be a disclosure issue, and that Overstock should have issued a public disclosure highlighting its flirtation with bankruptcy.

Among Sam's findings, just from reading the latest 10-Q, is that Overstock is juggling the books:

At the end of its third quarter, the Overstock.com had $18.4 million of net working capital (current assets minus current liabilities). However, the company would have reported a mere $1.4 million of net working capital had it not played a shell game and window dressed its balance sheet during the third quarter. Apparently, the company wanted to avoid reporting dangerously low net working capital going into the fourth quarter, while at the same time it is trying to renegotiate terms of its Master Lease Agreement (sale leaseback) with U.S. Bank.

One thing I find especially interesting is the utter indifference to all this by the local Utah newspapers, especially the Salt Lake Tribune and Deseret News and the local Associated Press bureau, which seem to view their role as that of extensions of Overstock's public relations department. Not a word has appeared in the local newspapers about the company's third-quarter financial woes, the libel suit against its CEO Patrick Byrne, or the downgrade that led to a sell-off in the stock on Friday.

Here is typical Salt Lake Tribune "coverage," a rewritten press release on a routine postponement in the company's lawsuit against Goldman Sachs.

Here is a typical puff piece from the Deseret News on the company's disastrous "rebranding" strategy -- but not a word from the company's conference call last week on how "O.co" was causing confusion among customers and has hurt sales.

In the unlikely event that word ekes out into the press on its financial travails, legal woes or the default threat, you can be sure that it will be written with an overt pro-Overstock bias.

In other words, one of the largest and most interesting companies in Utah just isn't covered at all, except when it issues a press release. If that isn't a "captured media," to use one of Byrne's favorite phrases, I don't know what is.

The stock today is down 7% so far, and is testing its 52-week lows. If you relied upon the Utah newspapers to tell you about this dog's breakfast of a company, you'd be scratching your head and wondering why.

UPDATE: By the end of the day Overstock shares were down 8.4%, trading at a 52-week low, possibly because of Sam's blog item.

On Nov. 1, Overstock's descent into insolvency was picked up by the Going Concern accounting blog, and the stock is still falling, but the Utah media continues its radio silence. Not to worry, if Overstock comes up with a positive spin or some non-news p.r. event they'll be right on top of it.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Advance Praise for Ayn Rand Nation

2011-10-27T14:27:00.005-04:00

I see that the pre-publication reviews for Ayn Rand Nation have been published on the Amazon.com page for the book, so I guess I might as well share them here:

"Think Ayn Rand is marginal? Think again! Gary Weiss's powerful new history inscribes the libertarian firebrand at the very center of the American story of the past three decades. "--David Frum, NY Times bestselling author of The Right Man and Comeback

“Ayn Rand Nation is a fascinating exploration of one of the fastest growing and most powerful coalitions in the modern conservative movement. With an unerring eye for detail, Gary Weiss embarks on a journey of discovery that examines the emerging influence of the Tea Party and other political groups that proclaim themselves to be the intellectual progeny of Rand, a crotchety, stubborn and proud purveyor of a philosophy of selfishness. Weiss explores this emerging cultural phenomenon with the even-handed and objective techniques of a sociologist, revealing that these activists are no unified bloc of believers, but are divided between absolutists dedicated to scholarly study of Rand, and fly-by-night devotees who pick-and-choose portions of Rand’s beliefs to create a false philosophical underpinning for their own political convictions. If you want to understand the men and women whose vehement voices are reshaping American government, you must read this book.” --Kurt Eichenwald, New York Times bestselling author of The Informant and Conspiracy of Fools

“The timing of this book couldn’t be better for Americans who are trying to understand where in the hell the far-out right's anti-worker, anti-egalitarian extremism is coming from. AYN RAND NATION introduces us to the Godmother of such tea party craziness as destroying Social Security and elimination Wall Street regulation. Weiss writes with perception and wit."--Jim Hightower, best selling author, newspaper and radio commentator and editor of the Hightower Lowdown

"Gary Weiss brings his skeptical bent and sharp writing to a character who has inspired both fanatical belief and deep derision for decades: Ayn Rand. The book is a compelling journey of discovery about a woman who continues to exert a powerful hold over our society. Weiss shows how Rand is ultimately quite a bit more complicated than either her fans or her detractors would have it."--Bethany McLean, best-selling author of The Smartest Guys in the Room and All the Devils are Here.

Genesis of a Libel: How Mark Mitchell Turned a Rehash into a Nightmare

2011-10-26T14:05:00.016-04:00

I'm fascinated on several levels with the libel suit that was brought against Overstock.com CEO Patrick Byrne last week by Ali Nazerali, a Vancouver stock promoter. This could easily be a crushing blow for both Byrne and his libel factory, the Deep Capture website that he created in 2007 to spin conspiracy theories and stalk his critics. But that's just one reason I'm fascinated.

It's also an example of what happens when you combine conspiracy-theory paranoia--as practiced by Byrne's employee Mark Mitchell, a disgraced former Columbia Journalism Review columnist--with warmed-over investigative reporting by real journalists.

Mitchell dragged in Nazerali as part of his preexisting agenda, which was to prove that there is a kind of comic-book global conspiracy that resulted in Al Qaeda joining forces with the Mafia to sabotage the world markets in 2008. That's part of Byrne's quasi-libertarian ideological conviction that Wall Street banks aren't to blame for the financial crisis (except to the extent that they criticize him).

So here's what happened:It seems that two respected financial journalists, Chris Byron and Lee Webb, had written a lot about Nazerali a few years ago, Byron in Red Herring and Webb in Stockwatch. (Ironically, Webb himself has been smeared by Byrne's website; see comments.) Here is an example of the work these two reporters have done on this guy, most of which is long offline.

It's good work but, well, old. So what Mitchell did, to make it new, was to make stuff up, irresponsibly linking Nazerali to Al Qaeda, the Mafia, and the nonexistent terrorist conspiracy to take down the U.S. markets. (It's not the banks, you see, it's them.)

I must say that in three decades in journalism I have never seen a more egregious case of libel by anyone. As I pointed out in a post on some of Mitchell's earlier "work" a couple of years ago, he is incredibly sloppy on basic facts, and just simply makes stuff up. His tenure at CJR was also a disaster; see here and here for a sampling.

For example, Mitchell contended that a certain person in charge of stock clearing at Penson Financial was a top exec at "Adler Coleman, best known for being the clearing firm to the Genovese Mafia family." In fact he was not in charge of stock clearing for Penson and it was ridiculous to say that Adler Coleman cleared trades for a Mafia family. According to my reporting for BusinessWeek in 1996, which Mitchell naturally didn't credit, one of Adler's clients, Hanover Sterling, had ties to the Genovese crime family. But it's absurd to claim that Adler cleared directly for a crime family, or to associate Adler with a crime family when most of the officials there probably had no idea of the mob involvement.

Nazerali got the same treatment from the incredibly inept Mitchell, and now Byrne is going to have to pay a few million bucks to make him go away. This is a good example of Mitchell's technique, which is to warm over the work of real reporters, embellish and make stuff up. The person he targeted at Penson could have sued for libel for this ridiculous fabrication but didn't, as is typical for most of Deep Capture's victims -- until Nazerali came along.

Apparently it never occurred to Byrne that he could be sued for libel, and in Canada, even though Nazerali sued Red Herring for libel, in Canada. This decision in the case does not bode well for Byrne, though I would hesitate to draw any conclusions from that.

What I do know is that no matter the outcome of the previous suit, won, lost or settled (the case never came to trial), this time Nazerali has a winner. Unlike Byron, Mitchell is not a journalist but a parody of one. And he is sued in a jurisdiction that is almost ridiculously favorable to plaintiffs, as evidenced by the court order shutting down Deep Capture.

What this means is that Byrne's goose is cooked, and he knows it, if this case is heard on the merits.

He talked bravely about "going a few rounds" with Nazerali in a message board post that violated the court injunction against such statements. But unless he is completely demented -- a possibility that can't be completely excluded -- he knows that this case will be a loser for him. His boy Mitchell will be roasted like a Peking Duck if it were to ever to come to trial, and in his moments of clarity he may actually realize that.

The bottom line is that Byrne is going to work diligently to get this case thrown out of court as soon as possible on technical grounds, his posturing to the contrary notwithstanding. Except for that message board post, you can expect nothing further from Byrne on the suit or Nazerali. I think the libel suit explains Byrne issuing a press release, obediently picked up by the Salt Lake City papers, on a routine delay in his suit against Goldman Sachs and Bank of America.

It's the coward's way out, of course. But it's the only path that makes logical sense -- especially if Overstock itself gets dragged in. Someone has called his bluff, and Byrne simply cannot afford to fight this one for the simple reason that he will lose.

Byrne has only no choice but to run. The only question is whether the Canadian court will let him.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Overstock.com CEO Patrick Byrne Defies Court Order

2011-10-24T11:29:00.017-04:00

The libel suit against Overstock.com CEO Patrick Byrne is getting more interesting by the moment. Yesterday I pointed out that Byrne posted a message on a bulletin board implying that the defendant in the case, a Canadian stock promoter named Ali Nazerali, was a criminal.

Now it emerges that, by so doing, Byrne defied a court order, issued by the court last week, prohibiting him from making statements about Nazerali anywhere on the Internet. See the summary above, from the British Columbia courts website. The injunction prohibits Byrne from making comments about Nazerali at his Deep Capture libel factory "or elsewhere."

Here, see for yourself (people getting this blog via email will need to click on the hyperlink):

Injunction Against Patrick Byrne Et Al in Libel Suit

Other interesting details from the order: the domain name cannot be transferred, and Google is not supposed to include Deep Capture in search results, which so far hasn't happened.

This would be pretty draconian if it happened to a journalistic organization. But Deep Capture is a corporate p.r. outfit, as the Society of Business Editors and Writers pointed out in a letter to Byrne (see below), proudly posted on Deep Capture.

I don't think Byrne understands that this is not the Securities and Exchange Commission, which is investigating him for financial fraud, or the Oakland court where Overstock is on trial for consumer fraud. This is a Canadian court where a resident of Canada has filed suit against him for making stuff up. Behavior like this is called "contempt of court." But even that isn't quite as important as the malice and recklessness that it demonstrates.

And just think: this costly legal mess originated because Mark Mitchell, the disgraced former journalist working for Byrne, recycled some old stories about Nazerali -- without attribution or credit -- and embellished them. Darned if I know why Columbia Journalism Review dispensed with his services.

Stay tuned. Next logical step, I would think: adding Overstock.com, which does business in Canada, to the lawsuit.

The comments section to this article contains an interesting post on the horrid position Byrne's defiance places Overstock's inert board of directors.

A copy of the lawsuit is below:

Libel Suit against Overstock.com CEO Patrick Byrne and Mark Mitchell

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Patrick Byrne to Libel Plaintiff: Drop Dead

2011-10-23T18:28:00.030-04:00

Byrne at work making life easy for Nazerali's lawyers

After three days of silence about the libel suit that has shuttered his Deep Capture stock market conspracy website, Overstock.com CEO Patrick Byrne surfaced today on the Investor Village message boards. He had a message for the gentleman suing him, which can be summed up thusly: Drop dead.

In a post entitled, "That's the spirit, Ali Nazerali!". Byrne said: "Gosh, I go off-line for a few days of R&R and look what happens. It looks like Ali Nazerali wants to go a few rounds. Happy to oblige."

Since Byrne is likely to be paying for the privilege, I'm sure that Nazerali will be happy to oblige as well.

What's interesting about his post is that he includes a news article describing Nazerali as a "controversial Vancouver penny stock promoter" and, somewhat incongruously, the text of an executive order blocking property of transnational criminal organizations.

The problem with this post is that it pretty strongly implies that Nazerali is a member of a transnational criminal organization and/or that he is involved in transnational criminal operations.

Now, that's fine and dandy if you're making stuff up about, say, me -- as his toadies Judd Bagley and Mark Mitchell have done. I can't afford to sue him, and as a journalist I'd have considerable qualms about doing so. But here you have a man who clearly can, and is in the process of doing so, and is not only doing so but has succeeded in at least temporarily shutting his website.

Yes, Nazerali is a controversial penny stock promoter. But that does not give Byrne the right to claim that he is a member of a transational criminal organization, or to contend, as he did in Deep Capture, that he is affiliated with Al Qaeda and the Mafia. It's fine to make that claim over a few beers at a bar in Provo, but when you do so on the web, it is going to cost you -- when you are sued in Canada.

As best as I can tell, Mitchell recycled old coverage that Nazerali received some years ago, juicing it with stuff he made up. The aim, as best I can tell, was to create an entire imaginary universe of stock promoters who didn't promote shocks but actually naked-shorted them. (That is, of course, the crime of the century.) And, if Byrne's recklessness in printing that rubbish wasn't already evident, Byrne has just done an excellent job of showing the kind of malice for which punitive damages are granted.

Yes, we all know: Byrne is "nucking futs." He is about to learn, in a very protracted fashion, that insanity is no defense to a libel suit.

In a comment to yesterday's item that wound up in the junk filter, Byrne's deputy at Overstock, Bagley, said that the "Streisand Effect" will ultimately make this all worthwhile for him and Byrne. (I.e., suing gives publicity to the libelous statements.) If I were Byrne, I would be more concerned about the "Henry Ford-Westbrook Pegler Effect." Successful libel suits ruined the reputation of Jew-baiting industrialist Henry Ford and destroyed the career (and finances) of red-baiting columnist Westbrook Pegler. Byrne is an ant by comparison.

Ali Nazerali may not be a choir boy, but Byrne had better be prepared to either prove that he is everything he says about him -- or be crushed.

Canada is a nightmare for news organizations that have produced honest, truthful news articles that displease people. I can only imagine the kind of hell it is going to be for a corporate p.r. operation that makes stuff up. And make no mistake about it: the corporation involved is Overstock.com, a publicly traded company whose shareholders are as yet unaware of the mess they've just been pulled into.

Meanwhile, it is going to be ka-ching at law firms throughout Vancouver, as Byrne's legal fees (for both defendant and plaintiff) mount up. He is truly what the Republican candidates call a "job creator" -- for lawyers.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Click here to pre-order the book from Amazon.com, and here to pre-order from Barnes & Noble.

Court Shuts Patrick Byrne's 'Deep Capture' Libel Factory

2011-10-22T09:33:00.019-04:00

Patrick Byrne's website has a new look

More evidence emerged yesterday that Overstock.com CEO Patrick Byrne definitely made a serious boo-boo when he published fairy tales about a Canadian stock promoter in his Deep Capture astroturf website. A Canadian court has issued an injunction shutting down the site.

The details are described here.

As I pointed out in my blog post yesterday, Byrne, his hireling Mark Mitchell, and other defendants (including his web host, GoDaddy), were sued by a stock promoter named Altaf Nazerali, who was named by Mitchell in a nutty conspiracy theory linking him with every crime since Jack the Ripper.

I have no idea why Byrne & Co. targeted Nazerali. His Middle Eastern name? Whatever the reason, they picked the wrong victim.

What makes this suit interesting is that we don't often see libel suits in which the defendant just simply makes stuff up from top to bottom. It's one thing to make mistakes or to exaggerate, but it's not every day that a court gets before it a libel suit in which stuff is simply fabricated without a shred of evidence. I'd say that blanking of the website is just the prelude to what is likely to be a messy and costly (for Byrne) bit of litigation.

I almost feel sorry for Mitchell. He's clearly a troubled person, and I don't want to poke fun, but I honestly don't think he has any idea of the ordeal that is ahead of him. I know a fellow who was the defendant in a libel suit who was subjected to two weeks of grueling cross-examination in a pre-trial deposition. The other side's lawyers probed his private life in grim detail. And in that case he was dealing with an American court, the plaintiff was guilty as hell, and he was telling the truth!

The same is true for any other person or entity associated with the site, including Byrne's loyal hatchet person Judd Bagley, a former company spokesman who was moved back to Overstock in late 2010, and former message board stalker Evan Karpak, who remains a principal of Deep Capture LLC and was, inexplicably, not named in the lawsuit. An oversight, I'm sure, that can be rectified in due course.

In Canadian courts, the usual burden is reversed and the defendant has to prove the truth of the libelous statements. Good luck, Mark.

So far, a single Canadian judge has shown considerably more fortitude in dealing with Byrne & Co. than the SEC, which ended an investigation into his financial-statement fabrications inconclusively, and has another probe dragging along for months without action.

The Deep Capture fictions are now dealt with, at least for the time being, but the fictions in his oft-restated financial statements remain unresolved and unpunished.

It will be interesting to see what happens next. I presume the website was shut by its web host, and of course there's nothing to prevent Byrne from moving the content to Iran or wherever -- or return DC to Overstock's own servers, where it used to be -- all the while bleating about how his right to make stuff up about people has been infringed by dastardly Canadians. The judge is just going to love that.

Golly, I wonder if Overstock or Byrne have any Canadian assets, or expect to have any in the future? Given the paper-thin corporate veil, and the interrelationship between Overstock and Deep Capture, it's going to be fun to see that litigated if Byrne should default. If he decides not to take it on the lam, I certainly expect to see an "O.co Coliseum" arising within proximity of the courthouse in Vancouver, as it has in Oakland.

For Overstock, this is looking more and more like a disclosable event, not that the fine print in the securities law has ever meant anything to Byrne. Stay tuned to this channel for more developments.

Meanwhile, I assume that certain Canadian lawyers are focusing on the links between Deep Capture and Overstock, a subject I have explored in the past. (See also this detailed blog post by Sam Antar.) Overstock is fast running out of cash, but it is a tempting target nonetheless.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

Patrick Byrne Fails to Celebrate Deep Capture Libel Suit

2011-10-20T17:48:00.016-04:00

Byrne: About to learn a lesson in Canadian libel law.

For years I've been following the exploits of the publicity-hungry CEO of Overstock.com, Patrick Byrne, famous for blaming his company's failing fortunes on a "Sith Lord," and for setting up an astroturf website, called Deep Capture, to libel and harass his critics, myself included.

Given Byrne's propensity for self-promotion--with this far-right Milton Friedman fan toting a camera crew to Liberty Plaza to glom on to the Occupy Wall Street movement--I was surprised that he failed to issue a gloating press release to celebrate a libel suit that has been brought against Byrne, Deep Capture and Mark Mitchell, the disgraced former Columbia Journalism Review editor who now works for Byrne.

The suit, brought in Vancouver, Canada, was filed by one of the dozens of victims of Byrne's libel machine, a stock promoter by the name of Altaf Nazerali who was the subject of lurid accusations by Byrne minions on the Deep Capture website.

Byrne, who once "celebrated" one of his many SEC subpoenas, has been uncharacteristically silent, though a hysterical post on the Deep Capture site a few weeks back indicated that he had been contacted about the impending suit. Whether his lawyers will continue to keep his trap shut is anyone's guess.

According to an item that appeared today on Canada's Stockwatch, "Nazerali claims that the site portrays him as a criminal and a fraud artist, among other things. The site linked him with an Osama bin Laden associate and with members of the Mafia."

Among the defendants, according to Stockwatch, are Mitchell, Byrne, Deep Capture LLC -- the corporate shell Byrne created to house his astroturf site -- and High Plains Investments LLC. Since High Plains, a hedge fund wholly owned by Byrne, is considered a related company to Overstock.com, this raises the question of whether Byrne is obliged to disclose it in the company's filings.

Whatever. I only know this much: Canada's libel laws are similar to Britain's, in that they are heavily pro-plaintiff. Byrne had apparently gotten used to libeling low-income journalists in the U.S. He stepped out of his league when he went after a well-heeled business exec in Canada who lacks most journalists' qualms (and lack of resources) when it comes to filing libel suits.

That's the problem with bullies, I guess. Sometimes they pick on the wrong victim.

I hope, for his sake, that Byrne's trust fund is alive and well, and that big daddy's money is continuing to flow into his account. Defending libel suits is a costly proposition, easily running into the millions, and I have a funny feeling Byrne hasn't got libel insurance. I also believe (though don't hold me to it) that under Canadian libel law, the loser has to pay the winner's legal fees. Stay tuned.

UPDATE: Mark Mitchell responds in the comments section, and I sur-respond.

© 2011 Gary Weiss. All rights reserved.
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AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

Ant-Semitism at the Occupy Wall Street Rally?

2011-10-09T11:27:00.012-04:00

I saw this same nut six days before the protests began

There has been some disturbing chatter on the Internet about anti-Semitism at the Occupy Wall Street protests in downtown Manhattan. It's discussed in this post on Daniel Sieradski's blog.

This is potentially dangerous stuff. If the OWS protests are hijacked by people with agendas, it could totally discredit the movement.

However, it seems to be a lot of nothing so far. I've seen no signs of anything like that myself, and I thought this post today on a right-wing blog was particularly unfair. It shows an anti-Semitic demonstrator at the OWS holding up a "Hitler's Bankers" sign.

It so happens I saw this same idiot in front of Trinity Church, at Wall Street and Broadway, on Sept. 11 -- six days before the Occupy Wall Street protest began. He was being ignored, which by the way is the best way to deal with a lone crackpot.

Any mass demonstration in New York City is going to draw nuts, and this one is no exception. But, the Internet being as it is, you can expect that any lone crackpots are going to get a great deal of attention.

According to Sieradski's blog, there were High Holiday services at Zuccotti Park.

I had more thoughts on Occupy Wall Street in my CNBC appearance on Friday, archived here.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

A Grassroots Protest Comes to Wall Street

2011-10-07T17:49:00.010-04:00

I appeared on CNBC's Closing Bell with Maria Bartiromo today to discuss the Wall Street protests, and how they reflect deep-rooted, widespread — and amply justified — anger at the major banks.

A video of the segment can be found here.

This is a genuine grassroots movement, and as Paul Krugman pointed out today, it's refreshing to see a protest that targets the right people and institutions.

I'd urge everybody in the New York area to come down to Zuccotti Park and see this protest first-hand. It's not a bunch of anarchists and crackpots but consists of hundreds of idealistic people who are unhappy with the state of the nation and want to change it. I wasn't at Woodstock but I imagine this is what that must have been like (without the nudity and mud).

I noticed that the book collection that they have at the park contained no copies of my famous anti-Wall Street manifesto, Wall Street Versus America! Some kind soul should order up some copies and have them delivered there.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

How Ron Paul Channels Ayn Rand

2011-09-28T09:28:00.003-04:00

I have a blog item in the FrumForum today on serial presidential candidate Ron Paul, and how he has adopted policies that closely parallel those of Ayn Rand.

This is the first a number of blog posts I expect to write for FrumForum, which is a leading political website.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

You Can Judge a Book By its Cover

2011-09-26T13:22:00.003-04:00

Or at least you can in this instance. The cover art was just posted on Amazon.com.

© 2011 Gary Weiss. All rights reserved.
------------------------------
AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

More on the Gotti Movie and Marco Fiore

2011-09-23T11:09:00.001-04:00

The entertainment website Showbiz 411 has an article yesterday that gives more details on the background of the producer of the forthcoming biopic on John Gotti, Marco Fiore d/b/a "Mark Fiore."

The thing that bugs me about Fiore's role in the Gotti film is not that he is a convicted stock swindler, but rather this kind of thing:

Fiore has been telling the people he’s hired for “Gotti” that he did go to jail, that it was no big deal. “He said he took the fall for someone who the government really wanted,” says a source.

In reality, Fiore was a major league stock scammer, served time in prison for significant offenses, and was one of the cast of characters in my 2003 book Born to Steal.

I always like to see ex-cons turn their lives around, but pretending that the past didn't exist is not the way to do it.

© 2011 Gary Weiss. All rights reserved.

------------------------------

AYN RAND NATION: The Hidden Struggle for America's Soul, will be published by St. Martin's Press on Feb. 28, 2012. Pre-order by clicking here.

Some Amazon-ranking Weirdness

2011-09-22T11:23:00.005-04:00

I think this shows how meaningless (and volatile) those Amazon rankings are.

Since my feeble attempts at publicity for AYN RAND NATION yesterday afternoon - just on this blog, which I've shamefully neglected since starting my weekly Street.com column some months ago, my long-unrevised website and on Twitter and Facebook - my Amazon rankings went from 3 million to 69,000 and now (and for the next few hours, I guess) it's the best-selling Ayn Rand biography.

All this is nice, considering that the publication date is five months away. It's doubly nice that a book that is not an Ayn Rand biography is, momentarily, the best-selling Ayn Rand biography. It's an examination of Rand's influence on modern American society. But I guess that category comes closest to describing the book.

Be that as it may, I am gratified that apparently some people out there are making a long-term investment in the book. By all means pre-order it by clicking here. I believe that Amazon doesn't bill you until it's shipped, but don't hold me to it.

© 2011 Gary Weiss. All rights reserved.

My Next Book — AYN RAND NATION

2011-09-21T12:11:00.009-04:00

My next book is something of a departure for me. It's not about scams or crooks or finance. It's about the hidden struggle for America's soul.

That's the subtitle of AYN RAND NATION, which will be published by St. Martin's Press on February 28, 2012.

AYN RAND NATION will explore the pervasive influence of the Russian-born author of Atlas Shrugged and The Fountainhead. She has long been dismissed by the intelligentsia as a fringe character. Don't you believe it.

Her ideology, Objectivism, has been adopted in large measure by a wide swath of America's opinion leaders, and to a large extent by virtually all of the Republican presidential candidates.

Rand provides the ideological underpinnings for the effort to cut or destroy Social Security, Medicare and Medicaid, and to drastically shrink the role of government.

She wrote the recipe for deregulation.

Love her or despise her, Rand is a pervasive influence in the national dialogue. To understand the ideological basis for that dialogue, and to comprehend the mindset that led to the 2008 financial crisis, it's essential to understand Ayn Rand.

That is the purpose of AYN RAND NATION.

Through the stories of people influenced by Rand, from the Tea Party to members of her inner circle to Alan Greenspan, this book explores how Ayn Rand became a pervasive influence on the American right.

This book explores why Rand matters — and why her ideology needs to be engaged, not ignored. Click here to pre-order your copy.

In the weeks and months ahead, watch this blog for updates and developments.

© 2011 Gary Weiss. All rights reserved.

The 'Fictional' Hildy Johnson?

2011-06-17T08:36:00.010-04:00

One of my movie heroes is Hildy Johnson, the aggressive reporter in the play The Front Page and three movie versions. The best of the movies was His Girl Friday, in which he was portrayed as a woman named, again, Hildy Johnson. On Broadway he was played by the legendary Lee Tracy.

Hildy Johnson was not just a movie reporter but the real thing -- and "Hildy Johnson" (Hildy is short for Hilding) was his real name. He was a court reporter for the Chicago Herald-Examiner in the 1920s, just as in the play and films. Here's his obituary.

So I was surprised that Michael Kinsley, a journalist I greatly admire, said in the New York Times today that he was a fictional character. Sure, The Front Page is fictional, but Hildy Johnson was the real thing.

Hey, we all make mistakes - I do pretty much every day, in everything I write, including probably this item - but one of the many Walter Burnses at the Times should have caught that.

While we're on the subject of the Times, can someone please tell me the location of Lehman High School, whose athletic field is the subject of a page one story today? I've noticed that the paper sometimes omits specific locations in articles about the outer boroughs, and it's annoying.

© 2011 Gary Weiss. All rights reserved.

The Gotti Movie Producer's Unsavory Past

2011-06-16T16:11:00.008-04:00

Here's a recent Inside Edition segment, which just came on the web, about a new movie on John Gotti. It's a biopic starring John Travolta and being made with the cooperation of the Gotti family.

What's interesting is the pedigree of the producer. His name is Marc Fiore, he was part of the unsavory cast of characters in my 2003 book Born to Steal.

In the 1990s, when he went by the name Marco Fiore, he was in charge of crews of brokers at Mafia-affiliated brokerages. Fiore pleaded guilty to securities fraud and spent time in prison.

Sure, an ex-con has a right to make a living, but the problem is that Fiore has not come clean about his past. He says that his background was in "mergers and acquisitions." Actually the only "mergers" were the merger of other people's money with his wallet.

A video of the segment, featuring a well-known Mafia expert, can be found here.

© 2011 Gary Weiss. All rights reserved.

Some Investor Bulletins the SEC Forgot ; The Economist is Suckered

2011-06-15T08:39:00.011-04:00

In my Street.com column today I offer up some ideas for long-overdue "investor bulletins," in light of the SEC's recent issuance of a warning against reverse mergers--an investor danger since at the 1980s. Nice of them to get around to it.

I deal with other long-neglected dangers such as reverse stock splits, Apple mania, and, of course, naked shorting hysteria.

Speaking of which, The Economist this week has the stock market conspiracy set salivating because of an article on the danger of unsettled trades. It's innocuous enough until you get to the portion dealing with naked shorting, and then it flits off into outer space. The Economist repeats the old conspiracy-theorist canard that naked shorting creates "phantom shares." Not true -- see this SEC fact sheet, at 7.1, which was published in one of the agency's rare efforts to counteract the massive NSS disinformation campaign.

How did The Economist get suckered? Just look at who's quoted, John Wellborn of the Haverford Group, "an investment firm." But actually it's an astroturf operation run by Patrick Byrne, the conspiracymongering CEO of Overstock.com, and its sole mission is to push Byrne's conspiracy theories.

As disclosed whenever Overstock issues a proxy, most recently last March, "From 1994 to the present, Dr. Byrne has served as a Manager of the Haverford Group, an investment company and an affiliate of Overstock."

In a rational world, the naked shorting hysteria that commenced during the financial crisis would have subsided, given how every study of the crisis, including the Financial Crisis Inquiry Commission, has laid the blame where it belongs -- on the actions of the banks. NSS conspiracy tales are so irrelevant they are hardly mentioned at all. But thanks to Byrne's astroturfing "investment firm," the unwary will continue to be suckered.

So SEC, get cracking with those investor bulletins! (I'm not holding my breath.)

© 2011 Gary Weiss. All rights reserved.

Novastar and Overstock in the News

2011-05-22T13:56:00.005-04:00

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.

© 2011 Gary Weiss. All rights reserved.

What a Coinkydink! Overstock.com Buys Naming Rights Near Courthouse

2011-04-27T17:13:00.010-04:00

How to get from the Overstock courthouse to the Overstock stadium

My favorite corporate crime petri dish, Overstock.com, is currently fighting a savage legal battle with seven California district attorneys over one of its favorite causes: its God-given right to rip off customers.

So it was fascinating to learn that Overstock had decided to spend $7 million to splatter its name over a stadium in..... guess where? Salt Lake City, where it is located, and where most such naming takes place? (You know, community goodwill and the like.) Or would it be Alameida County, where it is being sued?

You guessed it. What a coinky-dink! Why, they wouldn't be wanting to influence the legal process by throwing their shareholders' scant money around, would they? Of course not, though I have to admit that doing stuff like this is one of the grimiest and oldest ploys in creation.

In the map at the top, the new Overstock stadium is B, and the courthouse where it's fighting for its right to rip off customers is A.

Gee, what's the matter? Whatever happened to pay for play? Aren't politicians or judges for sale in Oakland? Don't DAs take political contributions?

Mark Shurtleff, have you thought of relocating?

© 2011 Gary Weiss. All rights reserved.

Imagining a President Donald Trump

2011-04-13T09:23:00.002-04:00

Can a failed casino operator, inherited-wealth landlord, reality TV star and narcissist become president of the United States?

I muse on that in my latest Street column here.

© 2011 Gary Weiss. All rights reserved.

Overstock.com Obstructs California Fraud Probe

2011-04-12T12:59:00.011-04:00

Sam Antar has a devastating blog post out today describing how Overstock.com has been dodging efforts by California law enforcement agencies in their civil prosecution of the firm for consumer fraud.

Sam's post caused the shares of the company to dip today, according to StreetInsider, which is the first time I've heard of a blog post affecting the share price of this dog's breakfast of a company. I'm surprised that investors aren't already clued in on this company's skankiness. Where have they been? You'd think that maybe they were reading the Utah newspapers, which only publishes puff pieces about the company.

According to the court filings, Overstock is trying to force the California cops to contact former employees through Overstock. This squalid effort to derail the investigation is described by Overstock as an effort to protect the privacy of former employees, when of course the opposite is the clear intent. Overstock wants to know which of its former employees' is being contacted by California to chat about the company's cheesy pricing practices.

Sam points out the irony of this line of bull.

And speaking of invasions of privacy, I see that CEO Patrick Byrne's hireling Judd Bagley, who heads Byrne's cyberstalking operation and is now back on the Overstock payroll, has formally cashed out of Byrne's Deep Capture blog.

The document can be read in all its glory below.

Bagley Bails Out

What makes this interesting is that really eliminates any distinction between Deep Capture and Overstock. Bagley is still posting on the blog and still serves as the blog's formal agent for service of process, so all this demonstrates is that Deep Capture is an arm of the SEC-investigated retailer.

So when Bagley wrote the other day to compare a rape victim in Libya to his much-criticized boss, he was acting in the scope of his employment at Overstock. I wonder what kind of Nescafe they're serving in Salt Lake City nowadays?

UPDATE: Responding to a routine phone call from a Bloomberg reporter, the besieged CEO Patrick Byrne went ballistic on his corporate blog. This California investigation seems to be a sensitive issue. I wonder what he has to be afraid of?

It's too bad the California DAs aren't for sale, like a certain Utah attorney general who will go nameless. Those unpurchased public officials sure are a pain in the neck.

© 2011 Gary Weiss. All rights reserved.

On Barry Minkow, Patrick Byrne and Sue-ers

2011-03-30T10:53:00.005-04:00

My latest Street.com column deals with Barry Minkow capsizing, the latest blogger lawsuit, and the latest retchings from the serial retcher, Patrick Byrne of Overstock.com.

You can read it here.

The blogger lawsuit involves something called Deer Consumer Products and a blogger named Arthur Little, both of whom are unfamiliar to me.

In the column I point out how nice it is when crooked CEOs go straight, since so few do. What I wonder is whether Byrne will ever go straight, and if so, what will he be: a Barry Minkow who remained a crook, or a Sam Antar who has genuinely turned over a new leaf.

I have a hunch, but I'll keep it to myself.

© 2011 Gary Weiss. All rights reserved.

Overstock.com's Latest Risk: Social Media

2011-03-06T13:42:00.005-05:00

The always-entertaining Overstock.com has an unconventional (and unintentionally humorous) "risk factor" in the Form 10-K that it filed the other day with the SEC.

It seems that Overstock, which recently was caught scamming the Google search engine, has a problem: social media:

Use of social media may adversely impact our reputation.

There has been a marked increase in use of social media platforms and similar devices, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of consumers and other interested persons. Consumers value readily available information concerning retailers, manufacturers, and their goods and services and often act on such information without further investigation, authentication and without regard to its accuracy. The availability of information on social media platforms and devices is virtually immediate as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning the Company may be posted on such platforms and devices at any time. Information posted may be adverse to our interests, it may be inaccurate, and may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also could be used for dissemination of trade secret information, compromise of valuable company assets all of which could harm our business, prospects, financial condition and results of operations.

What Overstock really should have said was that its own use of social media has already adversely affected its reputation.

Overstock and its wacky CEO, Patrick Byrne, have gone to great lengths to use social media venues to stalk and defame their critics, myself included. That, of course, accomplished nothing but to focus attention on Overstock, and to give Byrne and his hideous chief stalker, Judd Bagley, gobs of negative attention. Byrne responded by ratcheting up his smear campaign even further, such as by spreading lies about the divorce proceedings of Sam Antar, the Crazy Eddie scammer turned white collar crime crusader.

Byrne's last venture, early in 2010, was to stalk his critics and members of their families (my wife, Sam Antar's son, etc. etc.) on Facebook. All that accomplished was to get him still more horrid publicity from people like Barry Ritholttz, who otherwise would have no interest in this third-rate Internet retailer and its goofy boss.

That was pretty much the last hurrah for Byrne as far as his social media initiative was concerned. He moved his full-time stalker Judd Bagley to the Overstock payroll last year, after paying for him out of his own pocket, and his "Deep Capture" blog has been moribund since then. All that's left is an ongoing SEC investigation, a lawsuit by California prosecutors because of his anti-consumer practices, and this latest whining in his 10-K.

© 2011 Gary Weiss. All rights reserved.s

A Wolf in the Chicken Coop Named Brent Baker?

2011-01-07T14:52:00.010-05:00

President Obama has made some truly bad appointments, of which one that definitely seems to be in that category is his naming a Wall Street exec named William Daley to be his chief of staff. I muse on that and similar topics today in my Street.com column.

There are rumors floating out of Utah today that Obama may be making an even worse decision. A Salt Lake City weekly says that a character named Brent Baker is on the "short list" for U.S. Attorney in Utah. Now, just to be clear, I don't think this is a highly credible report. The source of such items tends to be the people supposedly on the "short list," so that they might actually materialize on same. I'm sure that's the case here. But let's just s'pose for a while that such a dreadful decision is in the works.

Baker is probably the worst example I can imagine of the revolving door in action. He was a lawyer for the SEC, and then immediately became deputy general counsel of an SEC investigation target, Overstock.com. I've written frequently about Overstock in this blog and elsewhere. He also has represented Universal Express and CMKM Group, both of which are stock frauds that have made, as has Overstock, naked shorting conspiracy claims.

Nothing wrong with any of that. What bothers me is that Baker seems to actually believe that rubbish. He is a card-carrying naked shorting conspiracy theorist.

As I pointed out in this blog item, Baker engaged in a creepy rant in a blog that he used to run called sectales.com. He was responding to a post of mine talking about his role at Overstock and issuer retaliation:

Guess what? Patrick and the DeepCapture folks are all correct. I saw it from within the belly of the beast and I can honestly tell you that "bent journalists" are more of a problem for our capital markets than "retailating issuers." Give me a break.

He signed this post "Fraudstopper." "SECTales" went offline right after that.

Do the feds really intend to bring in to a sensitive post somebody who talks about "bent journalists," i.e., journalists who turn the heat on crooked CEOs? That's the kind of rhetoric that's found in penny stock bulletin boards, usually used by stock promoters. Or praising Byrne and the astroturf site he created to harass critics of the company?

He also says that Bear Stearns was a victim of naked shorting and not its own sliminess. He was quoted by Matt Taibbi as follows:

Asked to rate how obvious a case of naked short-selling Bear is, on a scale of one to 10, former SEC counsel Brent Baker doesn't hesitate. "Easily a 10," he says.

Really? Precisely zero of the histories of the financial crisis, including Taibbi's Griftopia, say anything of the kind, and studies have shown that trading data shows the opposite.

In December 2007, Baker pushed the naked shorting conspiracy hoax in something called Utah CEO Magazine, co-authored with Patrick Byrne, the famously wacky CEO of Overstock.com.

I'd go on, but what's the point? This is probably a plant by the "reliable source," who I assume is very close to Brent Baker (such as the guy who looks at him in the mirror). In short, it is probably fiction. But Obama has made some terrible appointments, so not even obvious tripe like this can be easily discounted.

UPDATE: Not to worry, it was all a big publicity stunt. Baker "said he was withdrawing after the White House failed to nominate him." Good reason.

© 20101Gary Weiss. All rights reserved.

Omuse Bites the Dust

2010-12-20T09:29:00.005-05:00

New page listings on Omuse in its heyday

The corporate crime petri dish, Overstock.com, has quietly pulled the plug on its Wikipedia wanna-be, Omuse. I discovered that today, getting a dead link when trying to use the hyperlink omuse.overstock.com.

Omuse was created originally to provide a spot on the payroll for Judd Bagley, CEO Patrick Byrne's resident cyberstalker, and was essentially abandoned when Bagley was transferred to Byrne's personal payroll. Now Bagley is back on the Overstock payroll and Omuse was quietly taken offline.

The site attracted virtually no interest from Overstock users, so Byrne used it to print tirades and to serve as a sounding board for conspiracy theorist Phil Saunders. Things got so bad that Byrne had Overstock employees writing Omuse articles.

I guess the pretense that this was a legitimate use of corporate funds is no longer worth keeping.

I also notice that Overstock has pulled the plug on a longstanding promotional link to Byrne's "Deep Capture" smear site, community.overstock.com/deepcaptureblog/

Whether any of this is related to the ongoing SEC investigation, or the reappearance of Byrne's father John J. Byrne on the board of directors, is anyone's guess.

© 2010 Gary Weiss. All rights reserved.

Salt Lake Tribune is Hot on the Story -- Two Years Late

2010-11-19T08:42:00.007-05:00

Several times in this blog I've described how the Salt Lake Tribune and Deseret News, the two statewide newspapers in Utah, have failed miserably at covering the corporate crime petri dish in their midst, Overstock.com. Today we have the latest example.

A day after the rest of the media, the Trib today finally got around to covering the lawsuit by seven California counties accusing Overstock of defrauding its customers by using phony price comparisons and inflated list prices. For a discount retailer this is about as serious an accusation as possible, for it means that you're not really a discounter after all--that your prices are, in this case, as phony as your accounting.

The Trib article, a regurgitation of AP copy from yesterday, begins, "Utah’s Overstock.com Inc. is under fire from district attorneys in seven northern California counties who claim the online discount retailer regularly made false and misleading claims about the deals it offered consumers."

In fact, Overstock has been "under fire" from seven northern California counties for the past two and a half years, and this is the first time the Trib has deigned to inform its readers of that fact. The Deseret News never has nor, to my knowledge, any other Utah paper.

As I described in a blog post at the time, Overstock disclosed the probe by California authorities in April 2008, in an SEC filing and accompanying press release.

The Trib ignored the story back then, and I trust it would have ignored the story now if the non-Utah media wasn't all over this story.

At the Deseret News, the only coverage given to Overstock.com lately was this article mentioning in passing Overstock's support of a union-busting measure.

Not to worry, Overstock, the Deseret News and the rest of the Utah media have got your back.

© 2010 Gary Weiss. All rights reserved.

A Blog Accounting Students Will Love

2010-11-18T12:28:00.006-05:00

I haven't updated this blog much lately because of the press of other (i.e., paying) business, so I was pleased to find this blog listed with nineteen others by Rasmussen College in a list of "20 Blogs Accounting Students Will Love."

The very kind and appreciated kudo can be found here. Tracy Coenen's blog was also listed. I was a bit surprised that other, far worthier (than mine) and busier accounting blogs weren't listed (Going Concern, Jr. Deputy Accountant, Sam Antar's), but what the hell.

© 2010 Gary Weiss. All rights reserved.

California Sues Overstock.com on Pricing Scam

2010-11-18T09:36:00.015-05:00

In my Street.com column a couple of weeks ago I described one of the ways companies conceal bad news -- by burying it in the "risk factors" section of their SEC disclosures. I cited as an example my favorite corporate crime petri dish, Overstock.com. For the past two years, Overstock has buried news that its pricing practices were under investigation by California criminal authorities.

Yesterday, the district attorneys of now seven California counties sued Overstock for $15 million, claiming fraudulent pricing practices. The counties had offered to settle with Overstock for as little as $7.5 million, but Overstock refused. No wonder: if the company had coughed up such a substantial amount of cash, it probably would have been driven into bankruptcy.

The allegations in California allege one of the oldest consumer scams in the books:

"Beginning no later than January 1, 2006, Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products," the civil complaint states. "Overstock used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers."

Here is the lawsuit:

California AGs vs. Overstock

The company's general counsel "denied the allegations in the complaint and said the district attorneys failed to understand how Overstock advertised its prices." No, actually it seems to me that the DAs understood how Overstock advertised its prices.

Seems that an outraged consumer's complaint led to the charges against Overstock:

In 2007, Mark Ecenbarger bought a patio set for $449 on Overstock. The website claimed the list price other companies were charging for the set was $999.99.

But when the furniture was delivered, there was a Walmart sticker on the side of the box showing the set was really worth $247.

The reaction of the market to this news, which emerged after the markets closed last night, is intriguing. The stock is actually up substantially. The reason for that is simple: fraud is already incorporated into the share price. This company is under SEC investigation for systematically cooking its books. Why should consumers be treated any differently than shareholders?

Overstock is pretty shameless in its fraudulent pricing. As noted in the lawsuit, BusinessWeek surveyed its pricing practices back in 2004 and found that it systematically overstated "list" prices. For example,"of the 92 Toshiba and Panasonic products available Mar. 2, 40 had list prices higher than the manufacturers' list."

Just for the heck of it I checked out Overstock's price for the paperback edition of Andrew Sorkin's Too Big to Fail. The price at Overstock is $11.06 and the search page for the book fraudulently says "compare at $20.55" and "you save 46%."

Baloney. The biggest online retailer, Amazon, lists the book at $9.90 and gives the list price as $18.00, not "$20.55." Barnes & Noble also prices the book at $9.90, and gives the correct list price.

So where did Overstock conjure up that "compare at" price? The Future Felons of America outlet shop in Salt Lake City? Misstating an easily determined (you look at the book cover or website) publisher's list price takes a degree of unmitigated gall, and contempt for the law, found only at Overstock.com.

Seems that Overstock has as much contempt for its customers as it does for its long-suffering shareholders.

UPDATE: Predictably, the two statewide Utah newspapers, the Salt Lake Tribune and Deseret News, always happy to run trivia like this, published not a word on the lawsuits.

But numerous other media outlets have picked up on the story including an ABC affiliate in California. Hey, you can't buy publicity like that, especially at the beginning of the holiday season.

© 2010 Gary Weiss. All rights reserved.

Judd Bagley Goes Back on the Overstock.com Payroll

2010-11-14T10:26:00.008-05:00

New developments today in the continuing saga of Overstock.com, my favorite corporate crime petri dish. Word has slithered out of Utah that the nauseating corporate shill Judd Bagley (left), CEO Patrick Byrne's personal dirty tricks specialist and manager of Byrne's Facebook stalking campaign, has been transferred from Byrne's "Deep Capture" blog back to the corporate payroll.

As usually happens when Overstock wants people not to notice something, there was no public word of Bagley's transfer to the corporate trough. Word of that emerged from Bagley's LinkedIn profile, which indicates that he became "manager of collaborative systems" at Overstock in September. That was noticed by one member of the army of Byrne fans that keep tabs on his nutty escapades.

Bagley originally was on the corporate payroll as a p.r. spokesman before he was transferred over to DC in 2008, and now he's back.

There has been no activity on Byrne's Deep Capture site since a Bagley post in July, except for an incoherent post by Byrne in October.

It's not clear why the plug was pulled in this fashion. Was it the ongoing SEC investigation? Intervention by Byrne's dad, who is now serving on the board? Or was Byrne just bored with the whole thing and moved on to another plaything? Hard to say.

Whatever the reason, I'm sure that the shareholders of Overstock can rejoice at the addition of a slug of lead weight added to the company's payroll, and of course, the rank-and-file employees of the company can celebrate that they're working hard while Byrne puts a lackey on the payroll. Not sure was a "collaborative system" is, but my guess would be that it has something to do about spying on loose-lipped employees.

Byrne's PR effort nowadays are desultory appearances on Fox Business News, and otherwise the "jihad" against the naked shorting bogeyman has gone down the tubes. Every official and unofficial study of the 2008 financial crisis has found his obsession was not a factor in the crisis, and most haven't even mentioned it.

Interestingly, Utah corporate records show that Bagley remains "manager" and "registered agent" of Deep Capture LLC, with Byrne toady Evren Karpak still listed as "manager." It's not known if this means anything, or if it's just another sign of Overstock's casual attitude toward telling the government stuff.

The fate of Mark Mitchell, the fired former Columbia Journalism Review editor and Byrne's chief conspiracy theoretician, is unknown.

The biggest mystery of Byrne's corporate p.r. site remains unsolved: why did it take three people to manage a website that publishes rarely and serves mainly to salve the limitless ego of a bored CEO?

© 2010 Gary Weiss. All rights reserved.

Useless Auditors and a Persecuted Blogger

2010-09-20T14:54:00.003-04:00

Today in TheStreet.com I have a column describing the utter uselessness of auditors--and how bloggers (specifically Sam Antar) can sometimes do a better job rooting out questionable accounting and wrongdoing at companies.

As if to prove that general point, forensic accountant Tracy Coenen today has a hilarious blog item today describing the latest developments in a junk lawsuit brought against her and others by a company called Medifast.

It's not often that you see parties describing depositions while they're in the midst of litigation, and this one makes for fascinating reading. What isn't funny is that this suit hasn't been thrown out already.

© 2010 Gary Weiss. All rights reserved.

Invitation to a Puff Piece, Overstock.com Edition

2010-09-13T19:08:00.005-04:00

The financial media has been so beaten down lately that critical reporting has been largely a thing of the past. So the question arises, "Where is the next generation of puff pieces coming from?"

The answer appears to be, "email spams."

My favorite corporate crime petri dish, Overstock.com, is slamming into the email boxes of the media a spam email offering up the company's wack-a-doo CEO, Patrick Byrne, for interviews -- about his favorite subject, which is what a wonderful, generous guy he is.

The email was directed to my mailbox by the geniuses at this company's p.r. department. Any journalist wanting to fill some stress-free, news-free, reader-unenlightening space, is invited to write about Overstock's "Worldstock" p.r. gimmick. The "hook," as they say in the p.r. game, is a "humanitarian" trip to Malawi, of all places, being offered in a sweepstakes. Sort of a p.r. gimmick to promote a p.r. gimmick, a "p.r. gimmick-squared."

Here's the email:

From: Roger Johnson
Date: Mon, Sep 13, 2010 at 4:30 PM
Subject: Humanitarian Trip to Malawi, Africa to be awarded by Worldstock for 9th Anniversary
To: Roger Johnson

For interviews with Worldstock Founder Patrick Byrne about how this program has changed the lives of artisans all over the world please contact Roger Johnson at rojohnson@overstock.com or 801-947-4430

Social Media Release: http://pitch.pe/85377

Worldstock to Celebrate 9th Anniversary by Awarding a 10-Day Trip to Malawi, Africa

SALT LAKE CITY — Overstock.com, Inc. (NASDAQ: OSTK) announced a grand prize trip to Malawi Africa will be awarded as part of Worldstock’s Nine Year Anniversary Giveaway. The 10-day, all-expenses-paid trip for two will be awarded on September 17, 2010, by a random drawing from all giveaway entries. To enter visit www.overstock.com/worldstock-anniversary

“Worldstock is a department within Overstock.com devoted to fair trade with artisans in over 50 countries,” said Overstock.com chairman and CEO Patrick Byrne. “Worldstock’s mission is to create sustainable livelihoods for [blah blah blah]

It will be interesting to see if the spineless journalists of Utah, who have ignored every accounting gimmick and whitewashed every restatement made by this company, snap up the opportunity to write some spoon-fed pap.

The two Salt Lake City papers, the Deseret News and Salt Lake Tribune, have even ignored the company's recent quarterly earnings travails and share price slaughter. Investigative reporting? Fugetaboutit.

I assume that the papers out there have plenty of opportunity to write about the dark side of Overstock, judging from the kind of insider emails that I get (which I usually refer to the SEC). But the people out there are either wise to the uselessness of the papers and don't bother. Or they bother and are ignored.

No worries. Why should the Utah papers bother with actual news, when they've got a sweepstakes to write about?

© 2010 Gary Weiss. All rights reserved.

Inside an Issuer Retaliation Scheme

2010-09-11T13:02:00.002-04:00

Roddy Boyd's Financial Investigator blog today has a riveting inside account of the dirty-tricks campaign against hedgie David Einhorn from an interesting perspective -- from a journalist courted by a p.r. guy for Einhorn's nemesis, Allied Capital.

Roddy was working for Fortune when he was approached by Sitrick & Co. Seems that Einhorn's fund had hit some rough spots.

...once the hoped-for story touched upon Einhorn’s losses, [Sitrick flack Jeffrey] Lloyd had ready any number of other facts and figures designed to illustrate rather convincingly a very important premise to Lloyd’s client: that David Einhorn was a really, really over-rated fellow. In fact, if I had gone farther and implied that Einhorn was a pretty bad guy, well, Jeff and his clients would have been fine with that too.

All Sitrick’s Lloyd needed was a reporter to bite.

So he called a reporter at Fortune who he thought would be a lapdog, and was unpleasantly surprised to find himself referred to Roddy.

The rest of this fascinating account can be found here.

© 2010 Gary Weiss. All rights reserved.

Overstock.com's Loss and Patrick Byrne's Prescient Stock Trade

2010-08-09T10:05:00.014-04:00

My latest column in TheStreet today describes the dangers of investing in cult stocks, ranging from Sirius XM to Apple to my all-time favorite, Overstock.com. My point was that falling in love with stocks is a bad idea--and, as if to prove my point, Overstock decided to take a swan dive into the toilet late last week.

The issues are, as usual, multiple. Overstock had a real bang-up quarter, and investors celebrated by selling the stock in droves, pushing its price down 17% on Friday on heavy volume. But that's not really the problem, as Sam Antar and Caleb Newquist point out.

The problem is that CEO Patrick "Wacky Patty" Byrne made the far-from-wacky decision to dump $3 million in shares in May, and then gave a misleading interview in which he implied that the company's finances were on an even keel. They were not, and the resulting surprise can be seen in Friday's share price action.

Volume is again heavy today, and the shares are down again as of this writing. There was no press release celebrating the latest bad news, but there is a conference call, scheduled for 3 p.m. today. It will be interesting to see if CEO Patrick Byrne can find the right evasions and Buddhist aphorisms to mask the bad news. If past is prologue, I think that we can expect no impolite questions from the quaking analysts in attendance, and no questions permitted from Sam Antar.

Another prediction: the Salt Lake Tribune and Deseret News, Overstock's hometown papers, having both ignored the shareholder slaughter--the second-biggest on Nasadaq on Friday--will figure out a way of producing happy-talk articles. Stay tuned.

UPDATE: Still waiting on the Utah papers' latest lotion job. Meanwhile, Byrne's brief conference call falsely claimed that there was only one caller with a question--ignoring Sam Antar, who not only signaled for a question by pressing *1 on his phone, but had previously emailed Overstock on the subject.

I assume that the SEC will let this stunt passed unnoticed, as Overstock has pulled it in the past. I wonder what they have to fear from Sam? (As if I didn't know.)

Overstock shares are down 4% for the day on heavy volume. If this trend continues, the company's cult status may be over.

© 2010 Gary Weiss. All rights reserved.

How to Lie in Plain Sight, Overstock.com Edition

2010-06-28T07:00:00.000-04:00

So here's an interesting question: how much does a publicly held company have to lie in order to merit SEC sanctions.

The the implicit question in the open letter to the agency that was released over the weekend by white-collar crime-fighter Sam Antar.

The post deals the ongoing saga of my favorite corporate crime petri dish, Overstock.com, and describes how the company has been backpeddling and juggling lies in its correspondence with the SEC, recently released in corporate filing.

It's all pretty technical stuff, but it all comes down to the company's constantly shifting excuses for creating a "cookie jar reserve" that allow it to manipulate its quarterly earnings.

Overstock evidently has been pretty blatantly lying. It's up to the SEC to determine whether financial statements are worth the paper they're printed on, or whether they're about as useful as... well, as the SEC, I reckon.

© 2010 Gary Weiss. All rights reserved.

The Right and Wrong Way to Commit Corporate Crime

2010-06-07T12:28:00.004-04:00

In my Street.com column today I describe the parallels between Arthur Samberg and Kenneth Starr, how one represents the right way to commit an (alleged) crime, and one the wrong way.

It can be found here.

© 2010 Gary Weiss. All rights reserved.

A Must-Read Blog

2010-06-03T20:09:00.002-04:00

Roddy Boyd, ex-New York Post and Fortune magazine, has commenced a very promising new blog, The Financial Investigator. It can be found here.

Roddy began his blog with an item on a crazy little company called Spongetech. He's one of the toughest reporters around, so this blog will definitely be worth following.

© 2010 Gary Weiss. All rights reserved.

Patrick Byrne Dumps His Overstocked Overstock Shares

2010-05-26T10:53:00.008-04:00

Overstock.com's wack-a-doo CEO, Patrick Byrne, has apparently found a new kind of crud to foist on the his ever-suffering shareholder base--$3.1 million in Overstock.com shares.

White collar crime fighter Sam Antar has an analysis today of Byrne's dumping of the shares, which were shed by Byrne's wholly-owned hedge fund, High Plains Investments LLC.

Barry Ritholtz points out today that he owns shares in the company -- an example, I suggest, of the downside of quantitative investment strategies -- even though "I personally think it is a steaming pile of shit, that the CEO is an asshole, and that the entire company is probably corrupt."

He has some thoughts on the sale:

Is Byrne in possession of material insider information? Would he be so stupid as to sell the shares? (I doubt anyone could be that dumb).

Perhaps he sees a favorable outcome to the SEC investigation? Maybe he is raising money to pay a fine?

A favorable outcome of the SEC investigation is entirely possible. The agency, despite all the much-ballyhooed changes in its enforcement division, has retained the mantle of uselessness that it earned under Chris Cox and his predecessors. The Allied Capital fiasco certainly proved that. The question is whether Byrne's political connections and ex-SEC lawyers can prevent him from being penalized to the extent that he deserves.

Sam today provides a good review of the company's history of seeking to silence critics of its accounting -- which, of course, would make nonsense of any claim by the company that its serial book-cooking was "unintentional."

That would be obvious to any intelligent observer, which is why I have little hope that it will persuade the SEC. Still, the SEC pursued an enforcement action against Goldman Sachs when it was least expected, so perhaps another "man bites dog" moment is in the offing. Don't count on it.

© 2010 Gary Weiss. All rights reserved.

How to Make the SEC Even Worse

2010-05-25T17:08:00.004-04:00

Another brilliant idea from Mary Schapiro

In Portfolio.com today I have a suggestion on how to make the SEC even worse than it is: merge it with the Commodities Futures Trading Commission.

The idea is backed by the SEC's wretched chairman, Mary Schapiro, and by former chairman Artie Levitt. With these two geniuses favoring the move, how can it go right?

Levitt, of course, was the one who helped Alan Greenspan and his other pals sabotage the CFTC's effort to regulate OTC derivatives in the late 1990s. He has now graduated to become a consultant to Goldman Sachs. The man has no shame.

© 2010 Gary Weiss. All rights reserved.

Richard Blumenthal's Weird Lies -- and The Times's Weird Omission

2010-05-18T15:10:00.010-04:00

Read all about it -- in 2002

Reading the devastating expose on Richard Blumenthal in the New York Times today, I was as amazed as everyone else.

I became even more amazed when I ran his name and a couple of relevant keywords through the Google News Archive.

The Times reported: "In at least eight newspaper articles published in Connecticut from 2003 to 2009, he is described as having served in Vietnam."

OK, that's bad. But it took about ten seconds on Google News Archives to come up with this AP story, which ran in The Hour, a newspaper in Norwalk, on Oct. 6, 2002:

At a time when American youths were burning draft cards, Blumenthal enlisted in the Marine Corps Reserves. He said he enlisted because he had a "pretty low draft number."

Blumenthal did not go to Vietnam. Records from the Marines, obtained from a Freedom of Information Act request, said that he served no active duty, although recruits are technically on active duty while training.

Blumental insists he did six months on active duty. With the Marines, he studied administration and was classified as an "Admin Man."

Note what I put in boldface. In the news biz, we call this "old news."

Obviously, back in 2002, Blumenthal wasn't trying to hide anything. Nor does this excuse any of Blumenthal's subsequent lies; all it does is make them seem weirder. After all, all the facts were already out there, and thanks to the AP they were on Nexis. How could Blumenthal have expected to get away with it?

But I'm nonplussed by The Times's behavior here. Rather than picking up on this frank admission and the AP's ancient FOI request, it trots out instead a timeline showing his draft number and so on, which I guess is more impressive than an on-the-record quote in the AP eight years ago.

The Times should have at least mentioned this article.

By the way, note that it was published on the Hour's obituary page. Since the Times article was in the nature of a political obituary, placement there might have been warranted too. Amazing, isn't it, that the Democrats may lose a seat in the Senate over this kind of stupidity?

OK, the Times focused on the lies, not the truth-telling, and this is still a scoop that is probably going to get Blumenthal pushed out of the race.

Even so, I find it weird that the AP story from 2002 wasn't mentioned in the Times. It makes the story even more interesting. I assume the reporter knew about it. Or did he?

© 2010 Gary Weiss. All rights reserved.

GEICO's John J. Byrne Regains His Sanity

2010-05-13T10:05:00.005-04:00

As a longtime GEICO policyholder I've long admired John J. Byrne, the man Warren Buffett hired to run GEICO, which he turned into a powerhouse that also provides terrific customer service. So I was saddened to hear about his slide into senility.

Yes indeed. Sad, isn't it? His own son, Overstock.com CEO Patrick Byrne, said as much in an interview with CNet four years ago, at a time when the elder Byrne, then the non-executive chairman of Overstock, was critical of his wack-a-doo son's paranoid anti-short-selling campaign.

Chairman John "Jack" Byrne called Overstock CEO Patrick Byrne's fight distracting. The younger Byrne is waging a public-relations and legal battle with short-sellers and analysts he contends are conspiring to depress the company's stock price.
"I can't tell whether this jihad adds to the value of the stock or subtracts from it, but what it does is take from Patrick's time," the senior Byrne said in a Wall Street Journal story on Thursday. He said his "headstrong" son has ignored his pleas to drop the fight.
John Byrne said he'd seriously consider stepping down as chairman after stockholders meet next month, but would remain on the board as a director.

In fact he did step down as chairman and then from the board entirely. In the Overstock tradition, the widely publicized reason for his leaving the board was tastefully and fraudulently omitted from the company's SEC disclosures.

Such comments meant only one thing to Patrick Byrne--his father was mentally ill. He told CNet:

"You know, when you're 74, you feel differently every day, based on what you have for breakfast that morning," the younger Byrne said of his father. "I never really expected him to get this fight."

Poor man. Well, you'll be pleased to know that John Byrne is no longer drifting into dementia. He's now 78 and sufficiently in possession of his faculties to rejoin the Overstock board of directors.

"My father brings tremendous wisdom and experience, which will help Overstock continue to grow and mature as a company," said Patrick Byrne. "I am pleased that the Board of Directors nominated him, grateful that he was elected by the stockholders, and look forward to working with him again."

It will be interesting to see if John Byrne "drifts into senility" again by taking issue with its thug-in-chief, or instead chooses the route taken by the rest of Overstock's board of directors--which is to do nothing in the face of rampant securities fraud.

© 2010 Gary Weiss. All rights reserved.

Reporter's Stalkers Aped Overstock.com Hood Judd Bagley

2010-05-06T14:17:00.010-04:00

Bagley's tactics were used by Spongetech hoods

Over the past couple of days there's been a lot of ink spilled about Spongetech, a dodgy penny stock firm -- noted mainly for suing critics -- that yesterday was the subject of an SEC action, its top execs arrested by the FBI.

But there's another element of this creepy company that is emerging: the company's supporters, which include rabid anti-naked-shorting nutcases, made a conscious effort to ape Overstock.com's chief stalker, the nauseating Judd Bagley.

A New York Post article today says that Post reporter Kaja Whitehouse was stalked by Spongetech hoods in a manner that is straight from the Bagley playbook:

[A libel suit against Whitehouse] followed a months-long online campaign to discredit and intimidate Whitehouse that also extended to members of her family. Last month, current and former colleagues received an e-mail alleging Whitehouse was part of a criminal enterprise that "launders money for the Mafia and the South American Drug Cartels." The same e-mail, which also implicates her father in the alleged manipulation scheme, was sent to co-workers at the consulting firm where he works.

The individuals also went to lengths to dig up private details about Whitehouse and her family. One anonymous commentator, who uses the handle "Mingy," posted pictures and personal information, including addresses and work history for her father and siblings.

Bagley, a possible pederast, is famous for stalking the kids of critics of his boss, Overstock.com CEO Patrick Byrne. His other occupation is hanging out on Internet message boards under multiple aliases, smearing critics of Byrne.

Bagley's latest pretexting scam on behalf of Overstock and Byrne has been to send spurious emails to blogger Barry Ritholtz, posing as a "Latin American" investor.

Spongetech's masterminds are going to prison. File that under "unfinished business."

© 2010 Gary Weiss. All rights reserved.

Overstock.com Reports Profits! (By Juggling the Books....)

2010-05-05T11:00:00.008-04:00

You have to admit: my favorite corporate crime petri dish, Overstock.com, may be many things, but one thing it is not is unpredictable. When last we left our heroes, they were reporting "profits" for 2009 by juggling the books, in the process manipulating its shares upward by one-fifth.

Yesterday, the company again announced profits, this time for the first quarter of 2010 -- and again, pulled off this fete by juggling the books, and again concocting a surge in the company's shares.

We know this is happening not because of the atrocious Utah media coverage of this company, but because of white-collar crime fighter Sam Antar, whose analysis of the latest Overstock smoke-and-mirrors show is linked above.

This time, Sam finds, Overstock was able to manufacture black ink by manipulating its return figures. Additionally, he notes, the company's internal financial controls remain FUBAR, making pretty much anything it says about its financials suspicious at best.

According to the company's latest quarterly report, the long-pending SEC investigation of these very issues is continuing. The issue before our securities watchdog is one of intent. There is now no doubt that Overstock has systematically cooked its books. The company admits to that. The question is whether the SEC will swallow Overstock's malarkey that it threw its financial statements into the stew pot strictly by accident.

Hey, that makes sense. Most fraud is an accident, right? At least it is, according to the fraudsters.

That defense is even sillier than usual, because it's a matter of record that Overstock CEO Patrick Byrne was repeatedly warned of those very accounting issues by Sam Antar -- and that Byrne responded by stalking, smearing and harassing Antar.

It remains to be seen whether the SEC will let itself be sold the Brooklyn Bridge by the con men at Overstock. Stay tuned.

© 2010 Gary Weiss. All rights reserved.

Deja Vu? Drexel Burnham and Goldman Sachs

2010-05-03T11:26:00.005-04:00

In my column in TheStreet.com today I describe the eerie parallels between the Goldman Sachs scandal and the demise of Drexel Burnham a few years ago.

There are several major difference, including the one that I think is biggest: the apparent indifference of the U.S. attorney in Manhattan, Preet Bharara. Remember that this case was dropped on his lap, referred to him, and not initiated by his office. The Justice Department generally has shown little interest in prosecuting securities fraud since the beginning of the Bush administration.

© 2010 Gary Weiss. All rights reserved.

Goldman Sachs and the Short Sellers

2010-04-26T12:06:00.002-04:00

In my column today in TheStreet.com, I describe how the positive aspects of short-selling have been overshadowed by the general sliminess of Goldman Sachs.

The problem is not that Goldman went short, for instance, but that it went short while peddling mortgage-backed ca-ca to its clients.

Anyway, Goldman has another opportunity to commit hari-kiri tomorrow, as its top executives are called to testify before a congressional committee. What can they do? They can't plead the fifth, obviously. So they'll lie.

The question is whether their lying will result in repercussions. Based on the SEC's stance toward other frauds, such as especially Overstock.com, it's not altogether certain that fibbing alone will be enough to get the feds to act.

© 2010 Gary Weiss. All rights reserved.

Businessweek's No-Scoop Policy May Be a Problem

2010-04-26T10:54:00.013-04:00

The newly redesigned Bloomberg Businessweek is out, and seems to be getting generally favorable reviews, such as this one by former BW chief of correspondents Joe Weber.

I've been jaded by constant BW redesigns--this has got to be at least the fourth redesign in recent years--but I think that this one may be the best. A lot of the junk added in the last editorial regime has been discarded, and the magazine has a much more substantial feel, with longer articles and less of a "Readers Digest" quality. Old-timers will find this new magazine reminiscent of the magazine in its salad days--with some exceptions, and they are substantial.

First, the magazine lacks a strong editorial voice. That may develop in the weeks to come, but seems contrary to the Bloomberg culture.

BW in the old days was noted for taking distinct, somewhat "reformist" positions on issues, both in its long-discarded editorial page and in staff-written commentaries accompanying news articles. It was a contrast to Forbes, which has always been right-leaning and libertarian.

When BW worked well as a magazine, for instance, a cover package as significant as the Goldman scandal would have been accompanied by a strong, staff-written commentary and/or editorial. In this issue there was a column by Michael Lewis, and it was, of course, a great piece of work. But Lewis is a freelancer with a point of view all his own, and doesn't speak for the magazine.

That's a quibble, however, compared to a far more substantive issue. In Stephanie Clifford's article in the New York Times today, she reported as follows:

Moreover, any breaking items from the magazine will appear elsewhere first. “Any scoop from anywhere in the world is going to run on the terminal,” [Bloomberg chief content officer Norman] Pearlstine said, adding “the terminal is the focus of everything we do at Bloomberg.”

To me, this is stunning. How can you have a news magazine that doesn't break news?

As far back as the 1990s, BW used to run certain time-sensitive, competitive articles online -- not on the Internet but on America Online, which used to carry BW exclusively back then -- a few hours before they ran in the magazine. However, this was done sparingly, for the simple reason that it eroded BW's franchise as a news magazine.

Indeed, one of the "ten commandments" of the former BW editor Steve Shepard was that BW breaks news. This was essential, for it was believed that otherwise BW would not be worth reading.

If a scoop runs in Bloomberg first, it is no different from any BW competitor getting to a story first.

I have no idea if there are any exceptions to the no-scoop rule, such as major investigations by the BW staff. What I do know is that a weekly news magazine that doesn't consistently break news is not going to be of much value to either readers or advertisers, no matter how many pages are run or how pretty it may be.

For the sake of my alma mater, I hope that Pearlstine was misquoted.

UPDATE (5/1): Apparently he wasn't misquoted. Bloomberg seems intent on scooping its new acquisition.

In the next issue, Bloomberg's James Sterngold had a devastating scoop in BW on Lehman's Dick Fuld not disclosing $200 million in compensation. His piece moved on the Bloomberg wire at 2 p.m. Thursday afternoon, several hours before BW went to press. It will be old news to BW readers by the time they get their copies of the magazine.

© 2010 Gary Weiss. All rights reserved.

Businessweek's Masthead -- At Last!

2010-04-24T16:54:00.010-04:00

Most of the staff couldn't make it to the shelter

In previous posts I've commented on how BusinessWeek (n/k/a Bloomberg Businessweek) hasn't published a masthead as long as anyone can remember, which has made it hard to track the extent that the magazine has been decimated by layoffs.

Well, the newly redesigned magazine has a masthead, for the first time since before the takeover I believe, and "decimated" seems to be an understatement. As a matter of fact, the image that I have in mind is a nuclear explosion, in which only editors above the rank of senior editor were able to make it into the shelter. Most of the rest seem to have been vaporized.

The masthead was thoughtfully scanned here, and it's a shocker. The once-mighty staff, 250 domestic and overseas personnel as of 2004, has been reduced to 69. I'm not counting Matt Winkler, who is off the masthead but listed as editor in chief, though I am counting the 12 members of the Fortune-like "board of editors."

Here's a somewhat clearer version of the masthead:

Here's the bottom portion of the masthead, showing BW Online:

Every single department editor and domestic correspondent is gone, either fired or absorbed into the Bloomberg wire, and there are now three New York-based writers. There are now just four overseas correspondents. Of the three New York writers, one is Peter Coy, who covers economics, but there is no longer a Chief Economist or an economics editor. Another is Roben Farzad, who is all that is left of my old department that covered Wall Street and finance.

But then again, the magazine will be drawing from the staff of Bloomberg, and includes vast hordes of experienced people, including Pulitzer-winning investigative journalists. It will be interesting to see if this total slash-and-burn of the BW corporate culture results in a magazine that lives up to the hype.

© 2010 Gary Weiss. All rights reserved.

Dick Fuld Gives the Sergeant Schultz Defense

2010-04-20T11:18:00.019-04:00

Dick Fuld of Lehman Brothers is appearing before the House Financial Services Committee today, and his prepared testimony is already online. It's a riot. Fuld is giving the famous "Sergeant Schultz defense."

Repo 105? What Repo 105? He saw nothing! He heard nothing! Oh, and he also throws in the "Alzheimer's defense." He doesn't remember!

Meanwhile a former Leman exec named Matthew Lee -- his prepared testimony is here -- will be sitting at the same panel as his former boss, ready to put the lie to Fuld's excuses.

According to his prepared testimony, Lee raised concerns about Repo 105 with senior management, the Audit Committee of the board of directors, and its outside auditors at Ernst & Young. Within days of raising these concerns, he was canned.

It will be interesting to see what emerges at the hearing today. Stay tuned.

UPDATE: After hours of pabulum from Timothy Geithner, Mary Schapiro and Ben Bernanke, finally Fuld slimed his way into view -- not sworn in, for some reason, which is a shame, because this guy lies like a Persian rug. Asked why Lehman failed, Fuld blithered and blathered and talked out the clock.

The star was William Black, former litigation director of the Federal Home Lome Bank Board, speaking forthrightly about what needs to be done: Lehman needs to be charged with fraud.

Then came more questioning of Fuld, again blithering and blathering and evading even the most simple questions.

"Let me try to put this in some context," he would say, before launching into a filibuster--and these morons would let him.

Watching that gekko Fuld running rings around the committee, being allowed to evade and stonewall, it's easy to understand why we're in the mess we're in.

I'm sorry I titled this "Fuld Gives the Sergeant Schultz Defense." I should have made it, "Fuld Gives Congress the Finger."

UPDATE, 5:07 p.m.: The questioning is continuing, as do the evasions, the lies, the squirming. There was something vaguely familiar about Fuld's appearance today.

I couldn't quite put my finger on it, and then I remembered what Fuld's performance resembled: Frank Costello's famously evasive appearance before the Kefauver Committee.

I mean, the man can't even tell the truth about his No. 1 critic, David Einhorn, whose name came up toward the end of the hearing. Fuld was obsessed with shorts and particularly Einhorn, and Fuld today can't even tell the truth about Einhorn, bearly acknowledging his existence--or that he was right.

What a douchebag.

Lehman bankruptcy examiner Anton Valukas testified that Fuld's pants were on fire: “A fact-finder concluded that he [Fuld] in fact did know and acted upon information he knew or should have known. There was at least one witness who testified that he discussed Repo 105 transactions with him and that there were document sent to him by e-mail and otherwise, which reflected the Repo 105 transactions.”

© 2010 Gary Weiss. All rights reserved.

Wall Street's Moral Twilight on Display at Goldman Sachs

2010-04-20T09:00:00.002-04:00

This morning Goldman Sachs reported record earnings, in the latest example of how unmitigated gall has become the defining credo of Wall Street.

As William D. Cohan points out in the New York Times today, it’s hard not to see something obscene in how Wall Street reaped massive profits and bonuses in 2009, while ordinary people are struggling.

My Portfolio.com column today takes a look at Goldman's defense as exemplifying the moral twilight in which Wall Street resides. There's been a lot coming out today on how Goldman may actually win the case. That's possible, but it doesn't detract from the sheer sliminess of what Goldman did.

© 2010 Gary Weiss. All rights reserved.

Man Bites Dog, or Goldman Sachs Charged by the SEC

2010-04-16T14:48:00.020-04:00

The SEC shocked and amazed the civilized world today, filing civil charges against Goldman Sachs & Co. -- charging it with fraud in the sale of subprime securities. And what a fraud! Friends, these charges, if they stick, are going to sink Goldman. This is pure sliminess.

It all has to do with a collateralized debt obligation that Goldman sold a bunch of institutional investors (a/k/a "suckers"). This was not any old fraud, according to the SEC complaint:

According to the Commission's complaint, the marketing materials for ABACUS 2007-AC1 — including the term sheet, flip book and offering memorandum for the CDO — all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third party with expertise in analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson's adverse economic interest or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials.

Note what I've put in boldface. This is devastating. The Wall Street Journal says that "Goldman Sachs, which in a statement called the accusations 'completely unfounded in law and fact,' could face steep fines and be on the hook to repay nearly $1 billion of investor losses."

Now, I've long argued that short-sellers perform a valuable service to the markets, but this ain't an example of a short-seller performing a valuable service to the market. What it means is that Goldman entered into a slimy deal with a short to create a derivative that was ca-ca, and thus could create a profit opportunity for said short-seller, bigtime hedgie John Paulson.

It's a bit like designing a car in cahoots with an alternator manufacturer, for the purpose of being sure that it can break down so that it needs a new alternator. I can just see the anti-shorting nutcases going wild over this, and I can't really blame them. While nobody from the short side has been banged on this, yet, I expect that this is going to be like the Elgindy case: a big, fat black eye for short-sellers.

Paulson says it "is not the subject of this complaint, made no misrepresentations and is not the subject of any charges." JP is a quiet guy who doesn't care much for publicity, and is not happy with anything resembling negative press. Something tells me he's going to have to develop a thick skin, and fast, because a shit storm is coming. He didn't just sit back and smartly wager on a decline in the real estate market. This has him engaging in conduct that, morally speaking, is simply indefensible.

Interestingly, Paulson, as his statement acknowledges, wasn't charged. Whether he will be charged in the future is an open question. As I said a while back when I profiled him for Portfolio, this is one smart cookie. How he can escape from this with clean hands is beyond me. Fortune speculates on Paulson's possible exposure.

When I profiled Paulson for Portfolio, I said, " Left unexamined is the uncomfortable moral dimension of Paulson’s achievement. If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down?" According to the SEC complaint, he did considerably more than just see it all coming. Seems that he helped make it happen, by so generously helping Goldman design its toxic derivatives.

And now he's..... cooperating with the SEC, perhaps? Prepared to testify against Goldman, perhaps? If so, Goldman may be in major trouble.

Meanwhile, we have the amazing spectacle of a major bank actually being charged with wrongdoing in something related to the financial crisis. And Goldman Sachs, no less. Talk about man bites dog. Oh, and here's something else: the lead counsel for the SEC is Rick Simpson, who worked on the Crazy Eddie case years ago. Sam Antar tells me that Simpson is a dedicated, dogged guy. Diane Tucker has more on Simpson here. Goldman won't get off easy.

Still, you might argue that Goldman is already getting off easy in this sense: it has been accused of a criminal offense--fraud--in a civil action.

If I gave a bank a rubber check for twenty dollars I would wind up in the can. Can someone please explain to me why it is that a bank gets accused of defrauding people for a billion bucks and it gets a civil lawsuit?

Sure, it's a significant step. But what we're seeing, again, is the decriminalization of securities fraud.

UPDATE: Reports are filtering out of Goldman Sachs that a new theme song has been adopted by the company:

The Party's Over - Nat King Co...

Shia LaBeouf Disease and Other Wall Street Disorder

2010-04-12T15:51:00.002-04:00

My inaugural column on TheStreet.com describes the Shia LaBeouf stock-picking disease and other incurable Wall Street disorders: Greenspan Cholera and Chamber Pot Disorder among them.

You can read up on the difficult medical details here.

© 2010 Gary Weiss. All rights reserved.

Struggling Financial Crisis Commission Readies Big Show

2010-04-06T09:23:00.004-04:00

My Portfolio.com column today is a curtain raiser for the Financial Crisis Inquiry Commission's latest theatrics--a one man show by the Maestro, Alan Greenspan. This will be the first time Greenspan has appeared before an official body since October 2008, when he more or less said that maybe his thinking on regulation didn't work out.

The FCIC has been a big dud. It has issued no subpoenas, and is stumbling along, as the New York Times reported today.

Still, the Wednesday show should be illuminating.

© 2010 Gary Weiss. All rights reserved.

When is Good Publicity Not So Great?

2010-04-06T08:29:00.012-04:00

The answer is: when you're investigated by the SEC, and you lie in the Washington Post.

Yesterday, Overstock.com's wack-a-doo CEO Patrick Byrne was the subject of a puff piece by the AP. White collar crime-fighter Sam Antar tells me that he was talking to the writer of the article for literally weeks--and yet the AP reporter, Paul Foy, omitted crucial facts, and allowed Byrne to tell a breathtaking lie.

The problematic passage is as follows:

Byrne, who owns nearly 30 percent of the company's shares, says Overstock's accounting errors were generally conservative. The latest involved 0.1 percent of revenue and gave the company no advantage, he said.

Foy left out entirely that correcting the "accounting errors" had turned a much-ballyhooed fourth quarter 2008 profit into a loss. It's right there in 10-K, in black and white.

That is not a small thing. When the phony fourth-quarter profits were announced in January 2009, it pushed up Overstock shares by 21%. The news agency to which I just linked, Reuters, has never revisited the subject.

Nor did the article report that Overstock had bitterly fought the restatements, firing one of its previous accounting firms, Grant Thornton, or that it is under a continuing SEC investigation. For a piece that took weeks to prepare, such omissions are inexcusable.

Foy also irresponsibly quotes Byrne as comparing whistleblower Sam Antar to Bernie Madoff, when it was Sam who had blown the whistle on Overstock's accounting gimmickry.

The problem, for Overstock at least, is that this lamentable journalism, containing a blatant lie by Overstock's CEO, was published today, lies intact, omissions glaring, in the Washington Post. Pickup of the AP story by the local Utah media can be ignored, but not splashed in the SEC's hometown daily.

The SEC may well be destined to give Overstock the Allied Capital Treatment, but the Post article doesn't help, unless the SEC officials involved are too busy writing their resumes to care.

This AP story, meanwhile, raises a journalistic issue that I thought had been settled a long time ago: when a CEO lies, and when the reporter knows it's a lie, is the reporter obligated to point that out?

The answer, which I think is pretty obvious, is "of course." Otherwise the media becomes embroiled in what is, in effect, a pump-and-dump scheme. Reuters can't be held responsible for its January 2009 article reporting the phony Overstock financials, but the same can't be said for the AP.

The other question that it raises, which I've broached before: To what extent are puff pieces like the AP's motivated by a desire to avoid Byrne's well-known penchant for attacking the press?

Barry Ritholtz calls the AP story some of the worst business reporting he's ever seen. It's hard to argue with that.

© 2010 Gary Weiss. All rights reserved.

Out Google! Out AdBrite!

2010-04-05T16:53:00.003-04:00

I'm delighted to report that today I have ousted Google ads and Adbrite from this blog.

The reason is simple: the bucks that they bring in just don't justify the way they clog the blog with text and intrusive scripts. No one complained, but I found it annoying myself to have to navigate an ad before accessing the blog. Besides, those blog ad services were ridiculously stingy. I was getting just a fraction of what they were bringing in.

So to hell mit 'em, as my grandmother would have said.

© 2010 Gary Weiss. All rights reserved.

The Utah Newspapers Fail -- Again

2010-04-01T09:23:00.030-04:00

Overstock.com, best known for its Facebook pretexting campaign against journalists, yesterday restated its financials for 2008 and 2009, turning a much-ballyhooed fourth quarter 2008 profit of $1.014 million into a $705,000 loss--vindicating critics, especially Crazy Eddie mastermind-turned-crime fighter Sam Antar.

At the time the now-retracted "profit" was announced in January 2009, Overstock shares climbed 21% in one day. The company had "beaten analyst expections" of a loss, Reuters reported at the time. I am amazed that Overstock has not been prosecuted criminally for this blatant securities fraud. Yet an ongoing SEC investigation has produced not so much as a slap on the wrist.

Also yesterday, Overstock announced a $7 million profit for 2009 that would have been a loss were it not for paper-shuffling and nonrecurring items. It faces a serious criminal probe of its advertising practices in California, for which it is on the hook for as much as $8.5 million, and its internal controls are a shambles.

All of the above is plainly disclosed in the company's filings with the SEC yesterday. But you wouldn't know about any of this by reading Overstock's hometown newspapers, the Salt Lake Tribune and Deseret News, or by reading an AP puff piece that was subsequently churned out of its Salt Lake City bureau.

Sam today recounts how Overstock.com CEO Patrick Byrne and its president Jonathan Johnson systematically lied about their financials over the past few months--lies they were officially forced to disavow yesterday, as they issued restatements for four financial statements in 2008 and 2009.

Sam describes in detail how Byrne used nonrecurring items to turn his latest loss into a profit -- thereby engineering a 20% rally in the stock yesterday. Thus Overstock shareholders and employees, who are concentrated in Utah, had to read Sam's blog, this one or the Jr. Deputy Accountant to find out what really happened yesterday, thanks to the sheer cowardice of the Utah media.

The Deseret News picked up an AP rewrite of the press release. (The puff piece followed a few days later.) Neither the AP in its two articles nor the Trib article today mention that Overstock's fourth-quarter 2008 "profit," trumpeted by Byrne at the time in a gloating press release-- pumping up the shares by 21%-- was a big phony. It was, as restated yesterday, a loss. The brief Deseret News item doesn't even mention the restatements.

The Trib makes no mention of how it trumped the fourth-quarter 2008 "profit" in this article by the same reporter, which turned out to be a load of hooey.

Instead, the Trib quotes Overstock president Jonathan Johnson uttering this drivel: "When you look at what this restatement is really, it is positive."

Positive? Overstock admitting that its profit was a loss is a "positive"? Indeed, reading the Trib article, you'd think that the restatements were a triumph and not an admission of incompetence at best or, more likely, intentional fraud.

Nor does the Trib or Deseret News point out that California law enforcement authorities want either $8.5 million or $7.5 million from Overstock to settle a criminal investigation of its advertising practices. Both contradictory numbers are used in the 10-K released yesterday. Not only is the contradiction not mentioned in the papers' coverage, but this entire mess is not even mentioned.

Instead we get vague references in the Trib to "questions about its finances," without any mention made of the fact that those questions have been answered. Nor is it mentioned that the company's auditors at KPMG said in the 10-K yesterday that the company's internal controls were FUBAR.

Probably the worst omission in the coverage is this: neither newspapers points out that the $7.7 million profit for 2009 would have been a $6.5 million loss were it not for (as Sam points out):

Gain from extinguishment of debt (Consolidated Statement of Cash Flows): $2.8 million
Gain from settlements of legal matters (Footnote 16: Commitments and Contingencies): $7.1 million
Reduction of sales return allowances $4.3 million (Page F-16)
Total: $14.2 million

This is not the first time the Utah media has failed to do its job, or been used by Overstock to mislead its shareholders. Byrne and Johnson were quoted by the Tribune in November 2009 misstating the magnitude of the financial problem that it corrected yesterday. Johnson was quoted as saying as follows:

Johnson said the company believes its 2008 year-end financial statement was accurate and that its accounting firm at that time, PriceWaterhouseCooper, agreed and signed off. . . .

"None of these changes that they [Grant Thornton] are talking about, or that people at the SEC are now asking about, make any of our quarters go from negative to positive or from positive to negative," he said.

Byrne said much the same thing in a conference call with analysts.

There's no mention of any of this in the Trib's article, even though the same reporter wrote both articles. It's almost as if the Trib was covering up for the fact that it was used by Overstock.com to spin the dreadful condition of the company.

Now, we can't expect reporters to be accountants. But we do expect reporters to call accountants when confronted with companies that have a history of making false or misleading statements--particularly to their own newspapers.

The lesson for Utah's newspapers, and other newspapers in similar situations, is Journalism 101: Call an expert. Read the 10-Ks. Sure, you had to go to page F-53 of the 10-K to read about just how significant the 4Q 2008 restatement was -- and how much the company had lied in the past. Given the company's history of lies, evasions and misstatements, what else could they expect? Relying on the press release of a company like Overstock is simply inept.

Years ago you had to pay document retrieval services big bucks to get SEC filings. Now they're on the web, instantaneously. Sure these are big documents. So? If you can't figure them out, there are people who can do so.

The bottom line is that there is no excuse for incompetence nowadays in covering corporate slimeballs like Overstock.com. All it takes is Internet access, a telephone, and something lacking in Salt Lake City's media--a little backbone.

Yes, it's true, the company has a history of smearing the media and whistleblowers like Sam, and there's no doubt at all that Byrne will sic his hired thug, the kiddie stalker and possible pederast Judd Bagley, on any Utah reporter who doesn't toe the company line. Bagley once got in touch with Sam's estranged wife to dig up dirt on him --I mean, the guy will stop at nothing. To quote Barry Rithholtz, he is a "career douchebag." Harassing reporters is his job. He belongs in jail, but meanwhile he's on the loose, and he is doing a great job--just read the Salt Lake City papers today and you can see what I mean.

The journalistic malfeasance in Utah is understandable--but not excusable.

UPDATE: The AP's Paul Foy moved on the wire this atrocious article today, containing the following whopper from Byrne:

Byrne, who owns nearly 30 percent of the company's shares, says Overstock's accounting errors were generally conservative. The latest involved 0.1 percent of revenue and gave the company no advantage, he said.

Seems to me that a profit that really was a loss is an "advantage."

What makes this odd is that Foy knew that Byrne was dissembling. It's in the 10-K that the restatement had changed the fourth quarter 2008 gain to a loss, and Sam tells me he pointed that out to Foy, by phone and in writing.

More on the AP's messed-up reporting can be found in this follow-up.

Also, the Going Concern accounting blog weighs in.

Going Concern also live-blogged the Overstock conference call on Monday. Always a great show.

© 2010 Gary Weiss. All rights reserved.

California to Overstock.com: You Owe Us $8.5 million (or is it $7.5 million?)

2010-03-31T14:51:00.018-04:00

Byrne: Still hasn't learned to count

My favorite corporate crime petri dish, Overstock.com, just released its delayed and re-re-re-restated financial statements for 2009 and 2008 (which it has previously loused up), and a quick skim reveals some interesting tidbits.

I'm sure that the white collar crime-fighter Sam Antar will be providing an expert accountant's analysis of this latest spate of Overstock filings, but a skim shows a few interesting things:

First--stop the presses! Overstock's auditors at KPMG says that Overstock has insufficient internal controls.

Second, the Marin County District Attorney and four other DAs in northern California want the company to fork over $8.5 million to settle consumer ripoffs by Overstock. The company disagrees and is fighting it, so .... No, wait a moment, make that read "$7.5 million." It uses the smaller number on page F-37 and the bigger number on page 33.

Really. Here it is. Page 33:

In January 2010 attorneys for the Company received correspondence from the Office of the District Attorney of County of Santa Clara in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $8,500,000 in penalties and reimbursement.

Page F-37:

The Company received correspondence from the Office of the District Attorney of the County of Monterey in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $7,500,000 in penalties and reimbursement.

Hey what's a million here or there when your numbers are already fabricated, right? Anyway, I'm sure glad they asked for that delay to get their numbers straight.

By the way, California made this demand back in January. Isn't it charming how Overstock didn't bother filing an 8-K saying that people who can put you in jail want $8.5 million/$7.5 million? As I've said before, Overstock's not big on niceties of the securities laws, particularly the ones concerning "fraud," "ethics" and "disclosure."

There's a lot more, I'm sure -- such, as I suspect, these numbers--stated, restated or parboiled--not be worth the powder to blow them away. Just an educated guess.

Oh, except for that $7.5 million/$8.5 million number. I'm sure one of those numbers is correct. Maybe.

There was a restrained press release on the latest attempt at financial reporting from Overstock's loony, cyberstalking CEO Patrick Byrne.

Said Byrne, "I thank you for being patient with us as we worked through the questions raised by the SEC, the transition to the KPMG team, and the extra time it took to ensure that our financial statements are accurate." Yes indeed.

Since there was a press release, I imagine that Salt Lake City's tongue-tied newspapers now will have something to rewrite. I'll be majorly shocked if they mention that little problem in California. After all, that would require doing something other than rewriting the press release or running the wire story.

Anyway, I'm sure there will be more on this always entertaining company. Stay tuned.

© 2010 Gary Weiss. All rights reserved.

A Close-In Look at the SEC's Revolving Door

2010-03-30T11:29:00.004-04:00

My Portfolio.com column today is a close look at the SEC's revolving door, and how it contributed to the disgraceful treatment of Allied Capital and David Einhorn. The column can be found here.

The inspector general report is an incredible document, and I quote from it at length in my article. Unfortunately it lives down to all the expectations some of us have had about the SEC for quite a while--particularly concerning the influence of the "revolving door" of ex-SEC officials representing companies before the SEC.

Companies are entitled to the best representation possible. But the taxpayers shouldn't be subsidizing what has become a training course for ambitious lawyers--or as the OIG report puts it, "aggressive counsel."

© 2010 Gary Weiss. All rights reserved.

Overstock.com's Treasurer Has Left the Building

2010-03-30T10:50:00.005-04:00

Another Overstock official leaves for greener pastures

Sam Antar has a blog item on the latest news from the loony bin that is Overstock.com: seems that its Treasurer, Rich Paongo, quietly skedaddled in February, and the company "forgot" to file a Form 8-K disclosing that material event.

What makes it material is that Paongo left one month after his name emerged in correspondence with then-CFO Chidester over the company's hidden cash flow woes. Chidester left the company at the same time as Paongo, but the latter's departure was never revealed.

Indeed, word of his decision to seek greener pastures in the middle of a recession came not from any official channel but from an anonymous comment to my blog item linked above. The comment was from out in Utah, no doubt from one of the company's numerous loose-lipped insiders. It's confirmed by Paongo's Linkedin.com and Twitter public profiles.

I guess Byrne is hoping for the Allied Capital Treatment in his ongoing tussle with the SEC. He may be right. It's hard reading the SEC Inspector General's report without realizing that Overstock probably has got this matter licked. But hey, I'd be happy to be proven wrong.

Byrne, meanwhile, has until Wednesday to file a 10-K for 2009. Followers of this always entertaining company have marked that date on their calendars, but I doubt that these dudes have got their Quarterly Lie figured out just yet. Another delay would not surprise me.

© 2010 Gary Weiss. All rights reserved.

Goodbye, "Howard" McGraw

2010-03-27T12:53:00.008-04:00

BusinessWeek salutes "Howard" McGraw

Above is a story that has been on the BusinessWeek.com website for the past three days: an AP obituary of former McGraw-Hill CEO Harold McGraw that gets his name wrong in the headline.

BW was not alone. Apparently nobody at the AP or its member papers (such as this one) noticed that his name is "Harold" not "Howard." Otherwise I assume there would have been a correction and all these mistakes would have been fixed.

Strange isn't it? You'd expect that if the error was going to be corrected anywhere, it would be at BW.

I guess there's a bit of symbolic significance in this boner going uncorrected. Over the past few years, BW has become unrecognizable since the days when McGraw ran the magazine's former parent in the seventies and early eighties. One observer recently contended that BW had morphed over the past few years into the "Reader's Digest of American finance."

McGraw was an old-school CEO who rejected a bid from American Express, handsome as it was, on the grounds that Amex would not have been a proper steward of the company or the magazine.

The New York Times reported in its obituary that McGraw said Amex “lacks the integrity, morality and sensitivity” to merge with McGraw-Hill.

Wow. Can you imagine anyone rejecting a bid for a media company today on the grounds that an acquirer lacked "integrity, morality and sensitivity"? I wonder sometimes if those words have been cut out of the dictionary.

On the contrary, the current CEO Terry McGraw, his son, was only too happy to toss BW under the bus when it ceased being profitable. He put it up for sale and would have sold it to a venture capital outfit if the price had been right.

I happen to think that Terry's a good guy, but I doubt very much that he would have rejected a buyer for BW because it lacked "integrity, morality and sensitivity." Hell, it looks like he wouldn't have rejected a buyer even if it failed to come up with much in the way of bucks. Bloomberg paid chump change for BW.

So of course nobody noticed Harold McGraw's name was misspelled. It's also not really surprising that rather than pointing out how the company and BW were saved by this forgotten old man, BW runs an AP obit that underplays the Amex battle and doesn't even get his name right.

That figures. The correct spelling of his name wasn't the only thing that has been forgotten.

© 2010 Gary Weiss. All rights reserved.

Did the SEC Give Overstock.com the 'Allied Capital Treatment'?

2010-03-24T11:37:00.019-04:00

The Washington Post had a great article yesterday describing a recently released -- if heavily redacted -- report by the SEC Inspector General David Kotz, describing how the SEC flubbed an investigation of a company called Allied Capital, instead turning its guns on short-seller David Einhorn, who had blown the whistle.

Allied filed for bankruptcy in October 2008, but not before Einhorn was the subject of a smear campaign by Overstock.com CEO Patrick Byrne's "Deep Capture" website. Byrne claimed that Allied was among the terrific companies (including Overstock, natch, but also including innocent companies like Bear Stearns and Lehman Brothers) that were "attacked" by horrid people like Einhorn.

The parallels between Allied and Overstock are startling:

Both were probed for accounting irregularities at the instigation of short-sellers.

Both managed instead to get critics investigated--Einhorn in the case of Allied, Gradient Analytics in the case of Overstock.

Both were the subject of favorable treatment by the SEC, Allied getting a no-penalty wrist slap and the Overstock probe dropped entirely by Chris Cox's SEC, only to be renewed after the change in administration. Allied also got a pass for unlawfully gaining access to Einhorn's phone records, and probably doing the same thing to Herb Greenberg.

Both engaged in issuer retaliation, including a campaign against Einhorn by Allied and Byrne's smear campaign against whistleblower Sam Antar, conducted by Byrne's employee Judd Bagley (right), a possible pederast noted recently for stalking the kids and spouses of Byrne's critics.

Both were guilty as hell. Allied eventually succumbed to its own sliminess, and Overstock, under renewed SEC investigation, has recently admitted that its financial statements were completely fatuous. Antar's analysis of Overstock's accounting was completely vindicated.

The Post article focused on the SEC's malfeasance, including the excessive deference the SEC granted former SEC lawyers in the employ of Allied. The Post article notes that "Among other things, Kotz questions how SEC officials decide to open investigations and whether they are unduly influenced by outside lawyers -- particularly former SEC officials -- in conducting the probes."

It's not entirely clear if that's another commonality, though Overstock had on its payroll at least one ex-SEC lawyer, a proud lawyer for stock market thieves named Brent Baker. He worked for Overstock from 2004 until joining a Salt Lake City law firm in August 2006, and was at Overstock at the same time the SEC was probing critics of Overstock and subpoenaing reporters Herb Greenberg (also targeted by Allied) and Carol Remond, who had written critically of the company. The subpoeanas were later withdrawn.

As Joe Nocera observed in the New York Times at about the time those subpoenas were issued, Byrne sent Greenberg a gloating email three days before the subpoenas were issued. That stinks to high heaven. How did Byrne find out about the subpoenas?

Baker once belched forth the following creepy sentiments in his now-deleted blog "sectales.com," responding to a comment I once had made about issuer retaliation:

Guess what? Patrick and the DeepCapture folks are all correct. I saw it from within the belly of the beast and I can honestly tell you that "bent journalists" are more of a problem for our capital markets than "retailating issuers." Give me a break.

The SEC inspector general needs to explore the role that this character had in the whole Overstock mess.

David Einhorn wants the full, unredacted Inspector General report issued, but that's just a small part of what the SEC needs to do. In addition to finally taking action against Overstock for its in-your-face accounting violations, Kotz needs to thoroughly explore the SEC's conduct toward Overstock, and the dynamics that led to the abortive subpoenas being issued and the Overstock probe dropped.

The SEC needs to shut the revolving door that puts ex-SEC lawyers on the payroll of SEC targets as soon as they leave the employment of the agency. That makes the SEC less of an enforcement agency as it is a kind of training camp for the likes of Brent Baker, who make a fortune after they leave the SEC by working for the people they used to probe.

Byrne has withdrawn himself and his cronies from their usual cyberstalking duties for the past few weeks, because of what I presume are intense negotiations with the SEC over the firm's fate.

It will be interesting to see if the SEC takes a dive--again.

© 2010 Gary Weiss. All rights reserved.

The Problem With Overstock.com's Latest Problem

2010-03-17T09:10:00.011-04:00

Byrne: Tried to pull a fast one in his SEC filing

In my blog item yesterday about the corporate street thugs at Overstock.com, I pointed out that that there was a problem with the "notice of late filing" that these child-stalking douche bags quietly slipped into the SEC's files a few minutes before deadline.

Leave it to Overstock.com to have a problem with a problem. Of course, to use the word "problem" in the same sentence with "Overstock.com" is a bit of an oxymoron in itself. Well, as promised, here's the problem with the problem: It lies.

Hey, they don't call Overstock.com's financial statements the "Quarterly Lie" for nothing. Today's installment, described in Sam Antar's blog this morning, is that Overstock slipped in "new previously undisclosed material violations of Generally Accepted Accounting Principles (GAAP) and other Securities and Exchange Commission disclosure rules."

The problem is that Overstock specifically says these were not previously undisclosed issues.

If you turn to "Part III - Narrative," Overstock's chief can't-count-to-save-his-life officer, Stephen J. Chestnut, recounts a bunch of "errors" that need to be fixed before these geniuses can file their 10-K for 2009. Chestnut prefaces this list of goofs by saying, very nonchalantly, "As announced on January 29, 2010, Overstock.com, Inc. . . "

He then goes on to list some serious GAAP and disclosure issues that weren't announced on Jan. 29.

Overstock.com's wack-a-do CEO Patrick Byrne has been hiding under his desk while all this is going on, dodging a demand by Sam Antar that he apologize for lying about Sam correctly identifying Overstock's fraudulent accounting.

Not only that, but Byrne attacks Sam on the Overstock website, as Sam describes in his blog today.

That's a pretty clear case of issuer retaliation. I wonder if the SEC will wake up long enough to take action against these hoodlums? Banning its management from ever coming within 500 feet of a public company would be a good start.

UPDATE: Barry Ritholtz and Jr. Deputy Accountant weigh in. Love that graphic.

© 2010 Gary Weiss. All rights reserved.

Overstock.com Fails to Celebrate Latest Fiasco

2010-03-16T16:43:00.005-04:00

My favorite corporate crime petri dish, Overstock.com, and its goofball CEO Patrick Byrne, have been laying low recently, as followers of these child-stalking douche bags waited anxiously for what has come to be known as the Quarterly Lie: Overstock's attempt every three months to fabricate profits out of red ink.

Today, in a filing that came about a half-hour before the drop-dead deadline, Overstock filed a form with the SEC asking for more time to file its 10-K for 2009, on the grounds that the need to restate every financial statement since Adam created a logistical problem for these poor dears. But not to worry, they expect to erect another mountain of profit out of sun-dried red ink.

No press release, no yipikaye, to celebrate this latest fiasco. But there is this gem:

Also in its 2009 Form 10-K, the Company plans to report material weaknesses in its internal control over financial reporting.

File that under "No shit, Sherlock."

The only problem (well, it's not the only problem, but I'm being rhetorical) is that this latest filing has more than a bit of a problem.

As for what that problem is, tune in tomorrow. Same time, same station, same douche bags.

UPDATE: The envelope, please. . .

© 2010 Gary Weiss. All rights reserved.

R.I.P. BusinessWeek's Independent Identity

2010-03-16T09:51:00.016-04:00

A BusinessWeek editor reconsiders traveling to Planet Bloomberg

There's a classic Twilight Zone episode about a bunch of aliens landing on earth. The earthlings rest easy when they find that the aliens have a book called "To Serve Man." So everybody happily climbs on the spaceship until the end, when the rest of the book is translated. The heroine shouts, "It's a cookbook!"

I was thinking back on that great old episode as I pondered the fate of the staff of BusinessWeek after its acquisition by Bloomberg L.P.

No question, the magazine has improved in a number of ways, and has gotten praised to the hilt, largely because the depleted staff is now supplemented by people from the wire. It's helped a lot that recent BW stories have been by name journos on the Bloomberg payroll like Amanda Bennett, author Roger Lowenstein and my former Portfolio colleague Dan Golden, a Pulitzer-winning investigative reporter.

But as for the BW staff, which was pleased and excited by the prospect of being acquired by this mighty news organization--well, let's face it, that old Twilight Zone episode isn't off the mark at all, as best as I can see.

Prior to the acquisition, BW folks were assured that they were cherished, and that the quality of the staff was a major consideration in the decision to pick up the magazine for peanuts.

That was the promise. Then came reality.

There was a substantial head-chopping when the magazine was acquired late last year, with 123 people losing their jobs, and then another crushing layoff last week, involving 25 staffers getting pink slips and another 12 moving to the wire.

How many are left? It's hard to say. BW hasn't published a masthead in a very long time, which makes the calculation difficult. So does the fact that a lot of BW people -- some officially listed on Bloomberg directories as being on the staff -- actually work for the wire, not the magazine.

Here's a baseline: When I left the magazine in 2004, there were 251 people on the masthead of the domestic edition. That counts pretty much all the people on the editorial staff, including a couple who were on contract and not on staff.

And here's the best guess as to the size of the current staff:

During the layoff last week, Ad Age reported that 25 people were laid off and another 12 were transferred to the wire, accounting for "roughly one-third" of the staff (that is, the editorial staff, the writer of the article tells me). If those numbers are correct, there were 111 people before the layoff and 74 afterward, more or less.

That number seems a bit low. One insider, using the directories available internally, tells me that the editorial staff now comprises about 100 people. But that's just an estimate.

A more interesting indicator can be found by looking at the number of New York-based writers employed by the magazine.

In 2004 there were about 35 of us, with titles ranging from "senior writer" to "department editor," writing about subjects ranging from finance to economics to the Internet and science. Most of us also edited from time to time, but writing articles was the main part of the job.

Today there are three New York-based writers at the magazine. Now, not all the vanished are out on the street. Most of my colleagues at the Finance department, for instance, now write for the wire.

What this means is that BW's institutional memory is fading fast, its corporate culture has been totally up-ended, and its independent identity is pretty much gone.

Does any of this matter? Well, as Starkman points out in his blog, the magazine was pretty much at death's door at the time of the acquisition. Ad sales were collapsing, as they were for most business magazines, and the magazine's editorial franchise was staggering. To quote Starkman, the magazine became "the Reader's Digest of American finance."

It was either sale or a funeral. Still, it's tempting to consider what might have been, had McGraw-Hill decided to keep the magazine and try to turn it around, rather than give up.

© 2010 Gary Weiss. All rights reserved.

The Problem With Dodd's Financial Reform Bill

2010-03-16T09:48:00.003-04:00

I can sum it up in one word: "plenty." While it has positive aspects, they're likely to be shredded in the Republican buzz saw, and excessive power is granted to a captive Federal Reserve.

More juicy details can be seen in my latest Portfolio.com column, which can be found here.

© 2010 Gary Weiss. All rights reserved.

How Patrick Byrne Can Apologize to a Whistleblower

2010-03-11T14:33:00.004-05:00

The Going Concern blog today has an amusing item describing how Overstock.com CEO Patrick Byrne can apologize to Sam Antar--the convicted felon and former Crazy Eddie scam mastermind whose sharp analysis of Overstock.com's fraudulent financials has been vindicated.

The accounting blog has three suggestions, among them:

Overstock.com gift cards – Nothing says I’m sorry like free stuff that the aggrieved party can pick themselves. Bonus, the overhead on Byrne’s own inventory must be low. You know, because it’s his, not because there is any monkey business going down on OSTK’s financials.

To me, an even better gift would be a candygram--containing a truthful answer to the following email, which Sam sent Byrne the other day:

from Sam E. Antar
to PByrne@overstock.com
cc:
jtabacco@bermanesq.com
date Tue, Mar 9, 2010 at 2:12 PM
subject FW: Overstock.com Restatement

To Patrick M. Byrne:

Having not received a response from last night’s email (see below), I am asking for a response to the following question I asked you in that email:

Will you finally admit that I was correct when I reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?

In addition, I have the following questions:

Will you finally admit that I was correct when I reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures?

Will you publicly admit that I was right about Overstock.com’s violations of GAAP and other SEC disclosure rules (such as Regulation G)?

Will you publicly admit that you were wrong when you claimed that the company was complying with GAAP and other SEC disclosure rules, while at the same time you were publicly defaming me and other critics?

Will the company admit that I notified audit committee member Joseph J. Tabacco about Overstock.com’s GAAP and SEC disclosure violations (such as Regulation G) and continued to issue improper financial reports until it was forced to make corrections in its financial reporting?

As the CEO of Overstock.com you owe me a public apology.

Respectfully,

Sam E. Antar

The ordinarily voluble Byrne hasn't responded. As the Gipper used to say, he can run, but he can't hide.

© 2010 Gary Weiss. All rights reserved.

Another Layoff at BusinessWeek

2010-03-10T10:24:00.015-05:00

I was intrigued by the reports from Keith Kelly and Jeff Bercovici today that another layoff is imminent at the already depleted staff of BusinessWeek.

Keith says BW, which was hit by a catastrophic 30% decline in ad pages last year, "is bracing for a sweeping restructuring that will see many of the magazine's editorial staff reassigned within Bloomberg LP, while around 30 people are slated to get pink slips." That's interesting, because much of the former magazine staff was already reassigned within Bloomberg.

Jeff reported that the new Bloomberg BusinessWeek will engage in this umpteenth staff defoliation "to pave the way for a sweeping redesign of the magazine, which will debut April 23." (The umpteenth "sweeping redesign," I might add.)

Tyrangiel has been on the job since November -- enough time to figure out which of the holdovers from the BusinessWeek staff he wants to keep around. That said, this batch of layoffs is expected to be far more modest in number than the last, which included 60 employees from the editorial side alone. As it was last time, the news is being withheld until after the magazine completes its weekly close on Wednesday.

I'll be curious to see where those layoffs come from. Under the old regime, layoffs cut meat from the magazine, with line editors and writers laid off while the bloated upper masthead was actually expanded. Most writers at the magazine, such as the entire Finance staff, now report to the wire, which suggests that these cuts will come predominantly from editors. Keith says the photo department will be hard hit, but I'm curious to see if the upper masthead remains intact, as has been the former practice.

There is, meanwhile, an intriguing blog post by a prominent p.r. guy named Eric Starkman that raises a touchy question: is the "Peter Principle" at work in journalism? He cites BW as an example.

Stephen J. Adler, who also held senior editorial positions at the Journal before being named editor of BusinessWeek in 2005, is another example of how journalism rewards failure. BusinessWeek, a once grossly underrated magazine that long eschewed gourmet sizzle for solid meat-and-potatoes reporting and analysis, badly stumbled under Adler’s four-year leadership. Under his tenure, the weekly magazine essentially became the Reader’s Digest of American finance, replete with oversized typeface, condensed stories, and bulky photos and graphics that badly reduced the magazine’s news hole. The magazine was on the brink of failure when Bloomberg picked it up for next-to-nothing last fall. Adler resigned shortly after the deal was announced, subsequently moving on to Thomson Reuters where he was named senior vice president and editorial director of its Professional division. Since the sale, BusinessWeek is fast returning to its previously high editorial standards, which is to Bloomberg’s great credit.

It's a harsh assessment, but one that I've heard frequently over the past few years from journalists and p.r. people alike, as well as from current BW staffers.

I disagree with Eric on one point: I think it's far too early to say that BW has returned to its previous high standards. A lot will depend, I think, on what happens in that layoff.

UPDATE (3/11): As predicted, the layoffs took place on Thursday.Talking Biz News has more on the layoffs. Only two names were in the initial tally, both writers.

Adweek.com says that twenty-five staffers are being pink-slipped and that another 12 are being offered jobs within Bloomberg--a staff reduction of one-third, it says.

© 2010 Gary Weiss. All rights reserved.

"No One Would Listen" to Harry Markopolos -- Including the Media

2010-03-09T15:02:00.006-05:00

Harry Markopolos's book No One Would Listen has zoomed to No. 19 at Amazon.com and I can see why: it's a fast-paced thriller that is clearly the best book so far on the Bernie Madoff scandal. Markopolos sheds new light on how the SEC screwed up its Madoff probe--and how the media also dropped the ball.

Markopolos's book (marred only by, arghhhhh, reconstructed quotes) describes in detail his contacts with the late John Wilke of the Wall Street Journal, which fizzled out after a year. Forbes and the New York Times also were contacted and did nothing, but Markopolos had placed all his eggs in the Journal basket, which was a mistake.

Markopolos writes:

The question I wrestled with for a long time was: Why? When the newspaper that existed only to cover the financial world was handed a detailed explanation of the biggest fraud in Wall Street history, why wouldn't someone at least conduct a cursory investigation? Three phone calls, two phone calls, that's all it would have taken to verify that I wasn't some kind of nut, that the accusations I was making were based on fact. A half hour, that's all.

So far there are two alternative, contradictory explanations of what happened.

One, from Joe Nocera, is that Wilke "spent a little time rummaging around the Madoff story, but he didn’t really have any way to get at it, other than to take Mr. Markopoulos’s word for it, and that wasn’t good enough for either John or The Journal."

The other is that Wilke was eager to do the article but was stymied by his editors.

There's now an alternative theory being floated. A Wall Street Journal review yesterday concedes that "the press also did not cover itself in glory," but goes on to suggest that it was at least partly Markopolos's fault that he was ignored.

Former Journal editor Richard Tofel writes:

The author of "No One Would Listen" is fond of describing himself as "slightly eccentric," but he is not exactly self-aware. By his account, the fault for his having been ignored throughout eight years of warnings is everyone else's. But that conclusion requires ignoring much of his story.

Tofel goes on to recount some eccentric behavior by Markopolos and concludes his review as follows:

None of this behavior makes Mr. Markopolos's case against Mr. Madoff any less convincing. Nor does it excuse the SEC. But it does provide a fuller picture of the author than the cardboard cut-out of the lonely hero we've been hearing about for the past 15 months. With his book, Mr. Markopolos sheds more light than he intends on just why no one would listen.

Indeed. If Markopolos's case was convincing, that doesn't excuse the SEC--or the media.

I have a better explanation for why Markopolos didn't make any headway in the press: he just failed to contact enough reporters.

When Wilke began to lose interest, Markopolos should have gone back to Barron's, which ran an early account raising questions about Madoff, or approached Fortune or BusinessWeek, or other people at the Times or Journal. Or any number of other publications.

In other words, Harry Markopolos could have used a good press agent--which says a hell of a lot less about Markopolos than it does about the financial press.

© 2010 Gary Weiss. All rights reserved.

The SEC Botches Decade-Long Amex Probe

2010-03-02T15:16:00.004-05:00

My Portfolio.com column today examines one of the longest-running legal disputes in SEC history--a ten-year-long struggle to decide how weak a penalty to impose on the American Stock Exchange and its CEO, Salvatore Sodano.

The SEC found in 2000 that the Amex had done an awful job of keeping its floor traders honest, and directed that it shape up. The Amex did nothing. The SEC reacted to that act of nonfeasance by engaging in a little nonfeasance of its own.

In the end it decided to impose a penalty that was not only weak, but nonexistent.

© 2010 Gary Weiss. All rights reserved.

Medifast, Meet Barbra Streisand

2010-02-19T14:54:00.005-05:00

Ms. Streisand, I'd like you to meet another dumb lawsuit plaintiff

In an item the other day I described how a lawyer for Shaquille O'Neal, suitably named "Roach," had sent a threatening "cease and desist" letter to blogger Tim Sykes, demanding that Tim remove all refrences to a company tied in to O'Neal called NXT Nutritionals Holdings Inc.

Doing so was dumb as hell, because all the Roach did was to amplify Tim's claim that NXT is a "pump and dump"--something known as the "Streisand Effect," after an equally dumb lawsuit the singer once filed. All the suit filed by Streisand accomplished was to disseminate a photograph she was trying to suppress.

Roach was pretty dumb, but I've found someone even dumber--a company called Medifast Inc. Repeat: Medifast Inc. (just want to be sure you noticed) that is suing Barry Minkow, his Fraud Discovery Institute, forensic accounting ace Tracy Coenen and a bunch of other people, including an anonymous person on a Yahoo! message board, for saying naughty things about the poor wittle dahling mutlilevel marketer.

Here is Tracy's post on the suit, and here is a post from Sam Antar asking Medifast why it hasn't responded to the allegations that have arisen concerning the firm.

As with NXT, I have no opinion on Medifast except that a suit like this is just plain stupid. All it is going to accomplish is to disseminate Minkow's claims to people like myself who don't follow such things and ordinarily couldn't care less.

Sam points out:

The lawsuit alleges that Barry Minkow orchestrated an illegal scheme to drive down the stock price of Medifast shares to profit from short selling. However, Minkow has a first amendment right to critique or to use your words "bash" Medifast, notwithstanding the fact that he publicly disclosed that he holds a short position in your company and is a convicted felon. Minkow's opinion and analysis is backed up by very detailed reports prepared for Fraud Discovery Institute by Mr. FitzPatrick and other data made fully available to the public for examination and scrutiny.
The Defendants will certainly assert "truth" as a defense to claims of defamation made against them in this lawsuit. That same kind of truth led a federal Judge in Utah to dismiss Usana's (NASDAQ: USNA) frivolous defamation claims against Fraud Discovery and Barry Minkow and award them legal fees covering their Court costs.
I remind you that discovery in civil litigation is a two-way street. Minkow and the other Defendants can now subpoena all of Medifast's books, records, and documents and closely scrutinize them to look for any possible improprieties and irregularities in defending themselves in this litigation. In addition, they can subpoena documents from Medifast's auditors, vendors, customers, and other business relationships. You and others will be subject to sharp questioning under oath in pre-trial depositions by the Defendant's attorneys. Now Medifast's business documents will ultimately become subject to close public examination and careful scrutiny if this case goes to trial.

My Tim Geithner Fantasy

2010-02-17T10:57:00.005-05:00

More Clooney, less Costanza

OK, I'll admit it. I have fantasies about Tim Geithner. I describe them in the New York Observer, on the stands today.

I imagine that we are in a different world, a movie world. Instead of the George Costanza character we have before us, making excuses, we have George Clooney, channeling Jimmy Stewart. He smiles that Clooney smile and interrupts whichever grandstanding Republican or phony Democrat is trying to rip him a new one.
“Congressman,” he says, “I’m not going to sit here and make any more excuses. You know as well as I do that I’m no good at this. Not only can I not help homeowners, I can’t even sell my own house in Larchmont. The banks have me in their clutches to such an extent that I can’t go to the bathroom without asking for a hall pass. You know that I am no Alexander Hamilton. I’m not even a good imitation of Hank Paulson. Let me to put it to you another way: I quit.”

Sharesleuth Hones in on a Naked Shorting Gasbag

2010-02-17T09:43:00.029-05:00

Pitt is partners with a barred broker

Interesting article in Sharesleuth today, describing a cellular company's ties with a variety of shady characters--including a barred broker who has built a business catering to companies that use "naked short selling" to divert attention from their own wrongdoing.

The company at issue is called Lenco Mobile, and the site describes how the company is hooked up with a "recidivist SEC offender" named Michael Crow, and also is tied in with an odious character named Thomas C. Ronk.

Ronk is a regular on the naked shorting conspiracy carnival circuit:

Ronk operates several investment web sites, including BuyIns.net, which purport to identify companies whose stocks have been targeted by illegal "naked shorting'' and are poised for price jumps.

He also is partners with former SEC Chairman Harvey L. Pitt in RegSho.com, a site created to help short sellers locate shares to borrow so that they can remain in compliance with market rules.

Dealbreaker had an item a while back on Pitt's involvement in that creepy outfit, and how it constituted a conflict of interest. Pitt, arguably the worst SEC chairman in recent history, resigned in disgrace in 2002 after doing such a bad job that he just couldn't go on.

It's not news that Ronk has a regulatory history a mile long, or that he is in the business of helping crappy penny stock companies lure investors--as I described in this item in 2007--but Sharesleuth provides an interesting description of Ronk's pedigree.

Ronk was a stock broker in Southern California before running afoul of regulators.

In 1999, he was fined $50,000 and suspended for 30 days by the NASD. Without admitting or denying the allegations against him, Ronk consented to the entry of findings that he participated in private securities transactions without providing prior written notification to his firm, describing the proposed deals or his role in them.

Ronk's securities registration was later revoked for failure to pay the fine.

Ronk now is proprietor of several web sites, including BuyIns.net and SqueezeTrigger.com, that purport to identify stocks that have been the subject of heavy shorting and are poised to rise in price as traders cover their positions.

Ronk has been one of the most vocal proponents of a theory that a shadowy network of hedge funds and other investors have been driving down the stock prices of U.S. companies through so-called "naked shorting'' of their shares.

Two of the companies that complained most loudly about the issue - Universal Express Inc. and Pegasus Wireless Corp. - later became the subject of SEC cases alleging that they improperly dumped vast amounts of stock on the market, undercutting their own share prices.

True, but Ronk is even more closely tied in to stock scams than that. His Buyins.net suckers in hapless small investors looking for "short squeezes" in crappy penny stocks, including the Utah pump-and-dump Cyberkey Solutions, whose CEO, James E. Plant, was indicted for lying to the SEC about a pump and dump scheme involving his company. He pleaded guilty and was sentenced to 97 months in prison for promoting his bogus "homeland security" company, witness tampering and obstructing the SEC probe. (What's interesting about the latter charge is that he obstructed the SEC investigation far less blatantly than some other people I know.)

In this 2006 press release from Cyberkey, the now-imprisoned Plant uses Buyins.net "short squeeze" data in an effort to lure in more suckers. It's yet another indication of how the naked shorting conspiracy types provide a ready-made excuse for stock manipulators, or (as in the case of CEOs like Richard Altomare of Universal Express and Patrick Byrne of Overstock.com) are themselves cooking the books or otherwise ripping off shareholders.

Now, the one fly in the ointment here is that, as I've pointed out previously, Sharesleuth is financed by trading profits from shorting stocks mentioned in its articles. Such arrangements cross ethical boundaries. However, according to a disclosure in the article, "No one associated with Sharesleuth has any investment position, short or long, in Lenco Mobile."

Great. So why not make that a rule? My suggestion to Mark Cuban, who owns Sharesleuth, is that he drop this "profiting from shorting" stuff and figure out another way of financing the site. More frequent items would be nice, and, of course, exposing the naked shorting crooks on a regular basis would certainly put his website on the side of the angels.

Cuban is involved in an insider trading case (dismissed but still being pushed by the SEC) that is increasingly appearing to be a waste of SEC resources. If he removes the "legal insider trading" aspect from Sharesleuth -- and continues to crank out good stories like this one -- he's going to get a lot more public support.

UPDATE: A reader brings to my attention that Ronk used to work for the L.T. Lawrence chop house, one of the most notorious fraud factories of the 1990s, belatedly shuttered by the NASD in 2000. Lawrence was one of the numerous employers of Louis Pasciuto, the subject of my book Born to Steal.

It's not clear from the filings whether Cyberkey paid Ronk for its "research" (nondisclosure, of course, would be spitting on the sidewalk compared to the companies other crimes). Overstock.com paid him $18,910 in 2007, and other crummy little companies also pay him handsome "data fees."

© 2010 Gary Weiss. All rights reserved.

'Naked Shorting' Scam Artist Indicted Again

2010-02-16T17:05:00.016-05:00

About a year ago I described how one of the leading troubadours of the naked shorting conspiracy theorists, Joshua Lankford (left), had gone on the lam after a federal court indictment.

Lankford ran an Internet webcasting outfit called MN1.com, which had served as a sounding board for the likes of Patrick Byrne, the wacky, book-cooking CEO of Overstock.com, and Richard Altomare, the sticky-fingered chieftain of Universal Express.

A reader brings to my attention this press release from the FBI in Oklahoma City, announcing that Lankford and four other defendants were indicted in a $41 million pump and dump scheme. Lankford is still a fugitive, according to the FBI.

Late in 2006, while Lankford was running his schemes, Byrne sent his loyal acolytes to the crook-run MN1.com. He fed naive boobs to its pump-and-dump schemes by offering a "Club O membership worth $29" to listeners. All references to his support of the MN1 scam have been nuked from the Internet, but a mention of it can be found here.

Well, almost all references. After this item appeared, a sharp-eyed reader broad to my attention this Overstock press release extolling the virtues of MN1.com, with language cut-and-pasted from Lankford:

Market News First is an online, market news provider that brings investors current news on the market. Market News First is the only online, live radio web site that brings real market news to investors and features live interaction with companies from the Bulletin Board to NYSE.

Through daily, live interviews, we bring you up to date on all the established companies and inform the investors of the newest opportunities within the market. Market News First offers one-on-one interviews with the presidents and CFOs of companies to deliver answers to the questions that investors may ask and provides them insight into the companies’ present condition and future plans.

Seth Jayson at Motley Fool reviewed the MN1-Byrne relationship in this post in late 2007. Most of the links to which he refers, such as one from the Overstock community board in which Byrne praises MN1, have since been excised.

Byrne is enmeshed in criminal schemes of his own--sponsoring an Internet pretexting enterprise that stalked the spouses and kids of his critics. There is also a renewed SEC investigation into his own peculiar brand of "accounting," which created a "cookie jar reserve" allowing Byrne to manipulate his financials. And let's not forget that sales tax avoidance scheme he concocted during his failed attempt to bust into the diamond market a few years ago.

Byrne reported his 2008 results on Jan. 30, 2009, but reports that he would puke forth his latest set of phony numbers yesterday proved inaccurate. I guess he's still going back and forth with his latest auditors--he's on his third set of auditors in as many years--no doubt concerning how much phoniness is acceptable.

When Zero Mostel cooked the books in The Producers it was funny, but this long-running comedy is wearing thin. He really belongs in jail. Question is, will he go on the lam as Lankford has done?

Byrne, meanwhile, has yet to apologize for giving aid and comfort to the fugitive stock swindler Lankford. Of course, I imagine Byrne probably doesn't think the guy did anything wrong. Besides, what's that old saying, "Narcissism means never having to say you're sorry"?

UPDATE: One Byrne fan writes in to point out that it's not fair to tar Byrne with his association with Lankford, just on the strength of one appearance. Did I do that? Gee, I'm sorry. I should have pointed out that he appeared on MN1.com at least twice, and sent out an email (replicated here) to Overstock.com customers extolling Lankford's operation as "a kind of online CNBC."

Yet Byrne either knew or should have known that MN1.com was sleazy, as indicated by this follow-up post on its role as a stock promoter, and this one pointing out that it was an "analyst for hire shop."

Glad to correct the record.

© 2010 Gary Weiss. All rights reserved.

The U.S. Chamber of Commerce's Dishonest War Against Consumers

2010-02-16T11:44:00.005-05:00

My Portfolio.com column, the Weiss File, explores the U.S. Chamber of Commerce's dishonest campaign against the proposed Consumer Financial Protection Agency.

The column can be found here.

What makes the Chamber’s opposition especially potent—and disagreeable— is that it is purporting to represent the interests of small business. In September, the Chamber launched an ad campaign. One newspaper ad said, "Virtually every business that extends credit to American consumers would be affected—even the local butcher and the credit he extends to his customers."

The word credit is especially effective and evocative, because small businesses, like the consumers they serve, are among the hardest hit by the continual tight credit market. But the Chamber doesn’t want to do anything about that—such as by requiring that recipients of TARP funding make loans to creditworthy small businesses and consumers.

By the way, when was the last time you heard of a butcher extending credit to a customer? Mr. Glucksman, my family's butcher on Kingsbridge Road, used to do that--forty years ago. What bunk.

By the way, here is where Glucksman Brothers used to be, from James Shannon's terrific website. Sad.

© 2010 Gary Weiss. All rights reserved.

Shaquille O'Neal, Meet Barbra Streisand

2010-02-12T11:16:00.013-05:00

Shaq's lawyer wants a blogger to STFU

I must confess at the outset that I don't know a thing about basketball, nor am I much of a fan of Barbra Streisand. However, I would like to use this post in order to introduce Shaquille O'Neal to Ms. Streisand, as the basketball star's effort to silence a blogger is a classic case of the Streisand Effect.

In 2003, Ms. Streisand sued a photographer who photographed her Malibu home from an airplane. As The Guardian recounts in its article on this phenomenon:

In striving to protect her privacy, however, the actor only stirred up outrage among internet users – nearly half a million of whom looked up the offending image over a single month. And so, as Barbra might say, A Rule Was Born – that when a celebrity tries to take information off the internet, the selfsame nugget will receive exponentially more attention.

Now, Shaquille O'Neal is not suing anybody. But a gent identifying himself as Shaq's "general counsel," a lawyer in Los Angeles by the name of Dennis A. Roach, yesterday wrote what is known in the legal biz as a "cease and desist letter" to a blogger named Tim Sykes, who runs a blog that can be found at http://www.timothysykes.com/.

Tim focuses on penny stocks--he has a system that, he says, can produce profits from the trading of same--and he has been bearing down on a stock called NXT Nutritionals Holdings Inc. The stock symbol is NXTH.

I repeat, the stock is called NXT Nutritionals Holdings Inc. And its symbol is NXTH.

OK, I just wanted to be sure you noticed that.

Anyway, I have never heard of the stock and have no opinion on it. But in past blog posts, which you can find here. Tim has referred to NXTH as a "pump and dump," and has pointed out that the aforementioned Mr. O'Neal is its official spokesman. One post pointed out:

By the end of 2012, regulatory filings show, NXTH must give O’Neal 3 million shares of company stock in exchange for his publicity services. He was scheduled to receive the first 1 million shares back in November, filings show, and can start selling them at the beginning of February. At that point, he will be free to sell up to 20,000 NXTH shares a day (but no more than 100,000 shares a month) if he chooses to do so.

Clearly, NXTH could face some intense selling pressure – potentially crushing ordinary shareholders – if private investors like O’Neal start dumping their stock next month.
C’mon Shaq, aren’t you rich enough? Don’t you have any better financial advisors than your current ones who got you into bed with such snakes?

He went on to call the company a "blatant pump and dump."

Along comes Roach. Now, keep in mind that he does not represent the party that would presumably be offended by being called a "pump and dump," which is NXT Nutritional Holdings Inc. He represents O'Neal.

In his letter, Roach contends that in a Feb. 7 post entitled "Shaquille O’Neal’s Alleged Pump & Dump Is Up Nearly 100% Due To This $320,000 Promotional Mailer" (he added the word "alleged" to the title after getting the Roach letter). . .

. . .you state that Mr. O'Neal is involved in a pump and dump scheme. . . As you well know, 'pump and dump' is a fraudulent activity, consequently your public statements are false and defamatory, and greatly damage [sic] to Mr. O'Neal's reputation.

The Roach letter goes on to "demand that you immediately remove all of these postings from your website, blogs, Twitter accounts and any other form of public dissemination."

The letter says that time is of the essence, and these here posts gotta come down now!

It's a tough little letter with one deficiency: it doesn't point out anything inaccurate in Tim's blog posts.

Tim published another post today, you can find it here, asking, "Is This Shaquille O’Neal Penny Stock A Pump & Dump? Help Me Decide!"

. . . trust me when I say if you get a threatening letter (the first you’ve ever received in 2+ years writing this blog) from one of the richest and most powerful athletes in the world, no matter how true your statements are, you think about taking your little blog post down ASAP.

But as I reread my post I was reminded again of the importance of publically exposing pump and dumps and that I was providing my readers with information that was 100% true and supported by the publicly available sources which I quoted…after all, it’s not my fault that Shaq and/or his attorneys don’t understand that NXT Nutritionals Holdings Inc. (NXTH) looks very much like a pump & dump…perhaps if I educate them, while educating everyone else through this blog, perhaps then, the threats would disappear and Shaq and his attorneys, would not threaten me, but instead thank and congratulate me for teaching them, as everyone else does.

And on it goes. As for me, I've got a lot better things to do, but I'm now very interested in this little company and this big guy.

Shaquille O'Neal, meet Barbra Streisand.

© 2010 Gary Weiss. All rights reserved.

Patrick Byrne Admits Ownership of Deep Capture

2010-02-09T14:56:00.028-05:00

Not exactly a well-kept secret, yet Byrne still lied about it

Two posts on the corporate crime petri dish Overstock.com in one day! My goodness.

Overstock's loony CEO, Patrick Byrne, has been curled up under his desk since his company announced that its financial statements dating back to 2008 have been phony. But before the cone of silence descended, Byrne made a startling admission: he conceded that he owns the Deep Capture smear site. It just came to my attention, and nobody has picked up on it.

In a post on Stacie Kitts' excellent accounting blog on Jan. 18, Stacie had said in passing,

Now, if I am getting this right, Patrick Byrne is the CEO of Overstock.com and a purported owner of a website called Deepcapture.com.

Byrne materialized the following day with a comment:

Thanks for the story and the link. There are, however, some minor suggestions I’d make. You say:
“and a purported owner of a website called Deepcapture.com.”
Actually, for much of its existence we just put a big bubble on the upper right hand corner of the home page explaining that I am indeed the funder of DeepCapture.com; later, we added a whole page about it and who we are. So there is nothing “purported” about it. [Emphasis added]

Now, Byrne's ownership of Deep Capture was not exactly a well-kept secret. It used to be that users of that website could click on a link taking them to Overstock, and 5% of purchases would go to the site (see illustration at top of item).

But this is the first time he's fessed up and admitted owning the site, which is dedicated to personal attacks on the "criminal" journalists, bloggers and ordinary citizens who have dared to criticize Byrne: myself, Sam Antar, Roddy Boyd, Joe Nocera, Betany McLean, Susan Antilla, Herb Greenberg, and a host of others. Some of the targets are message board users, people you've never heard of, who hate crooks.

It's not clear why Byrne decided to let the cat out of the bag. Perhaps the subject came up in the SEC probe. Perhaps he's off his meds. Perhaps he's on his meds. Who the hell knows? All I know is that Byrne and his minions have lied about this in the past, and that if Stacie hadn't mentioned it in her blog today I might have missed it entirely.

Byrne had previously gone to great lengths to conceal his ownership of Deep Capture, initially listing a Byrne-controlled entity as owner in Utah corporate records, and then erecting a separate corporate shell. Ditto the bottom-feeding creep who runs the site, Judd Bagley. The latter denied that he worked for Byrne in a webcast last week. Byrne had admitted to the extent of his funding in a New York Observer article last month, but never came clean about actually owning it.

In a comment to an article in The Industry Standard in 2008, Byrne explictly denied that he owned Deep Capture.

The author of the article asked:

A few questions for you regarding your statement that Deep Capture is a work of "investigative journalism": Are the writers paid by you? Are they paid, full-time employees, or freelancers? Who pays their salaries? You describe yourself as a reporter, but are you also an editor? Do you assign and vet their work? Would you ever kill something that they wrote?

Byrne responded:

PS In direct answer to your questions: the employees of DeepCapture are paid by DeepCapture, LLC. I founded DeepCapture and gave it its initial capitalization, but then withdreww as a member of the LLC, and am not an employee. Yes, I am a reporter for DeepCapture, but I do not get paid. I am neither an editor nor do I "assign" stories. Occasionally I see stories before they go live and give my comments (which they are free to accept or ignore as they wish), but more often, I do not see the stories before they go live. And you did not ask, but I'll tell you anyway: yes, I enjoy being a reporter. [emphasis added]

I guess he forgot he said that. What's the old saying, something about "a liar requires a good memory"? Note that he wasn't even asked if he owned Deep Capture. He volunteered that information, while ignoring most of the questions.

The problem with lies like this is that they violate the securities laws (Rule 10b-5, to be exact) by deceiving shareholders about a material aspect of the company. The SEC can't regulate the morality of corporate officers, but fraud definitely falls within its purview.

In its filings, Overstock has never admitted that it has a link to Deep Capture, and a Deep Capture web page to which Byrne links in his recent blog comment does not disclose that he owns the website. Instead, it makes the misleading statement that "it is not part of Overstock" and refers to the three creeps who churn out attacks as "co-owners."

No, not directly. But under accounting rules--admittedly not one of Byrne's strong points--he is required to disclose his ownership of Deep Capture. As blogger Sam Antar pointed out in a blog post last month, the Overstock-Deep Capture relationship is covered by Statement of Financial Accounting Standards No. 57 (SFAS No. 57) governing "Related Party Disclosures":

Statement of Financial Accounting Standards No. 57 (SFAS No. 57) entitled "Related Party Disclosures" provides some "examples of related party transactions" such as:
transactions between... (d) an enterprise and its principal owners, management, or members of their immediate families; and (e) affiliates.
SFAS No. 57 defines an affiliate as:
A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an enterprise.
In addition, SFAS No. 57 defines control as:
The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an enterprise through ownership, by contract, or otherwise.
Furthermore, SFAS No. 57 defines related party transactions to include "services received or furnished" between such related entities. Deep Capture LLC furnishes services to Overstock.com in the form of retaliation against company critics.

I'm still uncertain that the SEC actually will take action against Overstock, but Byrne's admission on this point--especially considering that he's lied about this in the past--makes that possibility somewhat more likely.

UPDATE: It's not related to this, but Henry Blodget describes a problem he just experienced: the nauseating Judd Bagley appearing, unwanted, in his email box, which apparently is as pleasant as finding a dead mouse on the kitchen floor. "How do we get rid of him?" he asks. "You open up YOUR Buzz and see Judd Bagley tweeting at YOU and see how you feel about it."

Indeed. The only answer that comes to mind is the simplest: incarceration.

© 2010 Gary Weiss. All rights reserved.

Can Overstock.com Get the SEC Off Its Back?

2010-02-09T10:30:00.030-05:00

Utah Senator Bob Bennett with his favorite constituent

Going Concern today has a post describing the winners and losers in Overstock.com's admission last week that its financial statements going back to 2008 were as phony as a six-dollar bill--thereby vindicating whistleblower and blogger Sam Antar.

Sam and other Overstock critics and media people, including myself, had been viciously attacked by its nutty CEO Patrick Byrne and his toady Judd Bagley--a possible pederast employed by Byrne to stalk wives and kiddies as well as the people actually criticizing the company. And that brings me to the part of GC's post today which I found the most interesting.

Under the category of "jury is out," the respected accounting blog says as follows:

SEC: Everyone know that the Commission doesn’t have the best track record of late. They have managed to be the laughingstock of the entire bureaucracy and despite a lot of huffing and puffing about new divisions and putting together a dream team of enforcement and financial experts, we haven’t seen much for results. Overstock may be a chance to show everyone that they’re done taking shit and that they are going to start smacking companies around.

Indeed, and the question is whether the SEC will let itself be bulldozed, again, by this well-heeled and determined bunch of crooks.

Byrne took the humiliating step of announcing restatement of its financials--and promising to fix its accounting--in the hope of heading off serious penalties from the SEC, which is investigating Overstock's accounting and, ahem, undisclosed "other issues." The company, I'm sure, would love to get the SEC to simply shrug and say "no problem" as it did two years ago, in concluding a probe of the same issues.

I'm sure that Byrne is intensely employing his trust fund (he is the son of billionaire GEICO ex-CEO John J. Byrne) in pursuit of that goal. He and his clan are the largest campaign contributors in Utah, and he has a particularly close relationship with the ultra-right Utah Sen. Robert Bennett. He has a phalanx of lawyers and lobbyists in Washington to do his bidding.

Bennett can't swing quite as much weight as he did when Republicans controlled the administration, but a senator is a senator.

I'm sure that Byrne, Bennett and his Washington suits will claim that it was all unintentional--that he didn't mean to create a cookie jar reserve. It was all an accident! Just the way Bagley is claiming on message boards now that it was all an accident, he didn't mean to stalk wives and kids as part of his work for Byrne. He just accidentally stole someone's photo, accidentally made up a phony identity and accidentally engaged in pretexting on Facebook by mistake. Someone really has to instruct the kiddie stalker that sometimes silence is golden.

Will these excuses work? I imagine they're hoping for either a total exoneration or the kind of easy treatment that was meted out to crooks in the Cox years, such as when Navistar got a wrist slap under similar circumstances--though its auditor Deloitte was targeted as well.

The problem, of course, is that the evidence of intent to commit fraud is overwhelming.

Byrne went on a widely publicized accountant-firing spree when confronted with the need to restate his financials, and then lied publicly about his dealings with his former auditors, Grant Thornton--to the point of being publicly contradicted by GT.

Another problem is that, as Sam has documented over the years on his blog, these were not minor accounting goofs. Overstock committed blatant GAAP and securities law violations, and they were timed in such a way as to boost Overstock share prices. (Such as by, for instance, claiming a fourth quarter 2008 profit that was actually a loss.)

Byrne, his top execs, and members of the Overstock audit committee were made aware of everything they were doing wrong, in real time. Sam's correspondence with Overstock, and the company's retaliation and smear campaign was carefully documented by Sam over the years, and made public on his blog.

For example, here is the first paragraph of Sam's blog on the fourth quarter book-cooking:

Last Friday, Overstock.com (NASDAQ: OSTK) reported a fourth quarter 2008 net profit of $1 million dollars. CEO Patrick Byrne proudly told investors, "After a tough three years, returning to GAAP profitability is a relief." However, Overstock.com's "returning to GAAP profitability" was simply accomplished by the company violating GAAP through its failure to restate prior period financial reports effected by a certain accounting error. Had Overstock.com properly followed acounting rules, it would have reported an $800,000 loss instead of a $1 million profit.

It's hard to find a more simple example of a company seeking to deceive investors in so blatant a manner. Accounting bloggerStacie Kitts observes: "Here is a lesson on making yourself an easy target, lie to the SEC and then file a lawsuit where your internal company documents will expose the lie. DUH"

Overstock's response--the vicious personal attacks on Sam--were proof of intent to commit fraud. As I pointed out in an April 2009 blog post for Portfolio.com, Byrne's minion Bagley (right) engaged in an all-out whispering campaign on his Deep Capture website against Sam, to the point of contacting his estranged wife (who rebuffed him) and attempting to dig up dirt on his divorce.

Bagley is ostensibly focusing on the "crime of naked short selling," but his assault on Sam belies that, proving that his focus is on critics of his boss. Sam has no interest in naked shorting, only in exposing crooks like Byrne.

Byrne himself makes no bones about his ownership of Deep Capture. Indeed, note this blog post today. Accounting blogger Stacie Kitts had said Byrne was "a purported owner of a website called Deepcapture.com.” Byrne's response (accompanying a link to an attack on Sam): "there's nothing purported about it."

This is part of a pattern of issuer retaliation going back years. If the SEC wants to make an example of Overstock on that issue, it can pursue a case under Sarbanes-Oxley, which requires companies to disclose waivers to their ethics rules.

Another factor the SEC can't ignore is the pattern of false statements made by Byrne and his minions on this and other issues, but particularly concerning his accounting. Only just the other day, Overstock president Jonathan Johnson gave an absurdly misleading account of the departure of a key financial executive to the Salt Lake Tribune. Byrne also also ignored Regulation Fair Disclosure on numerous occasions, using limited readership message boards to leak out corporate news. But that's like spitting on the sidewalk compared to everything else he's done.

And then, of course, there are the issues--such as the sales tax avoidance scheme and absence of internal controls--highlighted in a recent article in the Big Money. Can Bennett convince the SEC to ignore that?

The SEC can, and should, require that Byrne and the Overstock officials responsible for this mess step down and never become public officers of another company. While so doing, they may want to look at the executive compensation handed out. While the "humble servant" was too rich to draw pay--this was just a hobby for him anyway--other Overstock execs got jaw-dropping compensation packages. The SEC has required corporate execs to cough up their ill-gotten pay under similar circumstances.

Securities lawyer Howard Sirota observes in his blog:

Worse yet, the SEC has subpoenaed the Rocker litigants [the supposed source of the Big Money article] for the documents produced in discovery in Overstock.com’s lawsuit against Rocker et al. No confidentiality order in the prior civil case can immunize these documents from production to the SEC; by definition they were produced in discovery to the adverse party and so are not privileged. This expanded SEC inquiry coincided with Overstock.com’s firing of Grant Thornton in an acrimonious dispute, the engagement of KPMG, and the third restatement in three years as Overstock.com was forced to restate 2008-2009.

The expanded SEC inquiry is highly likely to bear fruit since the very first leaked documents immediately led to the ex-CFO resigning and Overstock.com filing that its prior financials cannot be relied upon. The SEC is highly likely to bring an enforcement proceeding against Overstock.com and certain officers regarding false financial statements and false Sarbanes-Oxley certifications.

In a filing just yesterday, Overstock had the gall to announce huge salary increases and bonus payments for the top officers of the company. Compare with the numbers announced in the 2009 proxy, and you can see that Johnson's base pay went from $250,000 to $350,000, and he got a $225,000 bonus for the terrific job he did helping Byrne run this company into the ground.

CFO Steve Chestnut, who aided Byrne in showing how you can turn dry financial statements into material for standup comics, saw his base pay climb from 200K to $300,000--yup, a 50% salary increase for this dude--plus a 180K bonus. All also got the usual restricted stock grants, including the humble servant.

If that's not a wad of spittle in the face of the SEC, I don't know what is. What it indicates is that if the feds don't take action, a company that openly violates the securities laws--and compensates its execs handsomely for doing so--will get away scot free.

© 2010 Gary Weiss. All rights reserved.

How Wall Street is Killing Job Growth

2010-02-08T14:17:00.004-05:00

Pam Martens, a central figure in the fight against sexual harassment on Wall Street, has a perceptive post today in CounterPunch on how Wall Street is killing job growth.

I was really taken with her description of some of the death-related imagery that the Street uses:

Wall Street is so steeped in destruction that the symbols of death are everywhere. Wall Street calls the big newspaper ads they take out to herald the launch of their market offerings a “tombstone.” (To understand how appropriate that is, consider the billions in bond and stock offerings they raise for Big Tobacco.) What does Wall Street call the completion of a buy or sell order: an “execution” . . . Wall Street calls an order to complete a trade without any reduction in quantity a “fill or kill.” This could just as reasonably be called a “fill or cancel” order but it’s so much more fun for the thundering herd to race around a trading floor screaming “kill it, kill it!”

Restatements Highlight Overstock.com's Lies to Salt Lake Tribune

2010-02-05T10:47:00.025-05:00

Overstock.com's stunning admission yesterday that its recent financial statements were phony --vindicating years of hammering by whistleblower Sam Antar-- highlights an issue that I think could loom large in the SEC's probe of this creepy little company.

It all has to do with a fish story that Overstock.com president Jonathan Johnson gave to the Salt Lake Tribune, which appeared in the paper on Tuesday. Of all the lies that have spewed forth from this corporate crime petri dish over the years, these were among the most blatant and, I think, could be damaging to him personally, and to the company.

Johnson told the Trib that David Chidester, the senior vice president for internal controls, had not departed from the company because of any material issue. Johnson piled on the hooey, saying that Chidester had left because... well, because. No particular reason. He had been there for ten years, and it was time to move on.

Yet at the same time that Johnson was giving that rubbish to the Trib--the article appeared online the evening of Monday, Feb. 1--Johnson already knew that a decision had been made to restate all the recent financials, and that the Overstock board's Audit Committee had specifically determined, three days earlier, on Jan. 29, that its financial controls had been deficient for an extended period of tiem.

In the Form 8-K filed with the SEC yesterday, Overstock disclosed that the Audit Committee said the following on Jan. 29:

The Audit Committee has instructed management to prepare a comprehensive review and analysis of the causes of the errors identified above. The Audit Committee has further instructed management to submit to the Audit Committee a comprehensive detailed plan for the remediation of the underlying cause of the errors and for the implementation of stricter policies to avoid errors or deficiencies in accounting procedures and application going forward.

. . . In connection with the restatement of the Company’s fiscal 2008 consolidated financial statements, management has reassessed the Company’s controls and procedures including internal control over financial reporting as of December 31, 2008. Management has concluded that there was a deficiency in the operating effectiveness of the Company’s controls in place related to accounting for billings to drop ship fulfillment partners which constituted a material weakness. Accordingly, management’s report on internal control over financial reporting for fiscal 2008 can no longer be relied upon. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Johnson surely knew all of this--it had happened on Friday, Jan. 29--at the time that he fed the following ca-ca to the Trib three days later concerning the exit of the exec who was CFO through the end of 2008, and afterwards head of internal financial controls:

"David had been with us over 10 years. It felt like for both David and the company it was time to move to something new.

"I don't know who said what first, but it was clearly a mutual agreement. We've grown a lot in 10 years. We are a big organization and thought it was time for both parties to move on."

Johnson was right in one sense. No, Chidester hadn't left because of a recent Big Money article describing a sales tax avoidance scheme and FUBAR internal controls. He left because of something considerably more important. But Johnson--who, remember, wasn't obliged to say a thing to the Trib--decided to mislead and lie by withholding a material fact, which was that Chidester was in hot water with the board of directors. He wasn't walking away from a 300K job because he felt like going out into the job market in a recession.

Johnson's motivation in not lying would not be something as old-fashioned as "telling the truth," but a more primal urge called "self preservation." Rule 10b-5 of the securities laws forbids corporate officers not just from lying, but make it verboten "to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading."

Johnson once famously said about Sam Antar that he "can’t read his blog because it’s so full of lies." He clearly meant to say "full of truth."

I'll be interested to see if the Trib ever gets around to reporting Overstock's disclosures yesterday. And if it does, will it describe its own role in Overstock's scheme to mislead the media, the public, and its shareholders.

Most newspapers would be upset about being lied to this way, let alone to be used by a company to commit securities fraud. But remember that this is Utah, and evidently the rules of journalism don't apply there. Remember that there is another statewide paper, the Deseret News, and it hasn't breathed a word about any of the travails of this open sore in its neighborhood.

Another thing I'll be interested to see is if either Salt Lake City newspaper adjusts its heretofore uncritical view of Overstock and its wacky CEO, Patrick Byrne, in light of recent events. Byrne has so far been out of pocket, but I'm sure he'll deploy his possible-pederast fetchit boy, Judd Bagley, on a diversion mission fairly soon. Plenty of kids out there for these two douchebags to stalk.

UPDATE: The Going Concern accounting blog has this to say about the SEC finally taking action against these bums:

So while this appears to wrap up the SEC’s Division of Corporation Finance investigation, one little problem that still remains is that the SEC’s Enforcement Division has not wrapped up its probe of the company. Yeah; so there’s that. Considering the the track record of the SEC, we’d typically give a company a 50/50 shot of coming out of a probe by the Enforcement Division unscathed but in the case of Overstock, we’ll be going with Schape’s {SEC chairperson Mary Schapiro's] crew.

Overstock.com Admits its Financial Statements Were Phony

2010-02-04T18:51:00.022-05:00

Overstock CEO Patrick Byrne was too busy cyberstalking to comment

(Updated 10/4 evening)

It's official: Overstock.com is now the Overstock Stock Fraud.

The corporate crime petri dish put out an SEC filing this afternoon. after the market closed, announcing that its 2008 and 2009 financials will have to be restated.

What that means can be summed up very simply: all of its recent financial statements are lies. It also means that white collar crime-fighter Sam Antar, who has previously blogged on how Overstock has systematically falsified its financial statements--and was viciously attacked in return--was right in every detail.

The usually voluble CEO Patrick Byrne was believed to be in a bunker with Eva Braun.

As usual, Byrne acted like a kid waiting till the last moment before telling Mummy that he broke the bathroom window. The decision to make the restatements--something Byrne had previously, vehemently said was unecessary, to the point of firing his previous auditor--was made on Jan. 29. He waited until the expiration of the time period set by those pesky securities laws.

Sam has blogged voluminously on this issue, and justifiably gloats in this post tonight. Sam summarizes the case he had previously laid out for regulators, which is that Overstock manipulated its earnings by using a "cookie jar reserve."

Here's a chart from Sam describing just what the restatements mean--something Overstock deliberately concealed in its deliberately murky filing today:

Be sure to compare the top row of numbers with the bottom row. Note that a much-hyped fourth quarter "gain" was actually a loss.

One of my favorite war movies, Above and Beyond, about the bombing or Hiroshima, was playing on Turner Classic Movies at the time the 8-K was filed. But you didn't have to be watching TCM to see a mushroom cloud--the one rising over whatever credibility Overstock may have previously had. It also puts a fresh light on the disgusting activities of Byrne's employee Judd Bagley (right), a possible pederast, as he was eloquently termed by one his victims, who has cyberstalked the wives and kids of his critics and people in the media, on Facebook and elsewhere.

These people have behaved with all the class of kids in sixth grade who spy on the girls' bathroom, and there is now no possible doubt as to the reason: they were covering up for the cookie jar reserve that Patrick Byrne's instituted to manipulate his quarterly financials.

All the attacks on Antar, all the claims that its accounting was a product of "Mormon eagle scouts," have all turned out to be lies to divert attention from fraud.

The SEC is investigating Overstock.com. I hope that this investigation examines the whole range of wrongdoing by this rotten little company and the creeps who run it.

The voluble Byrne, meanwhile, was last found on a stock message board, doing his usual stalking shtick. He's bored and repelled anyone who's taken a close look at his reptillian self, but not to worry, I'll hang around until he is an odoriferous memory. I don't think that will be too long.

Barry Ritholtz summed up the situation well in a post tonight:

Their whole campaign against naked shorting, the bizarre cyberstalking — all of that junk has been nothing more than a grand case of misdirection to hide the fact that Overstock has been cooking their books for who knows how long.

Let’s look at what preceded their latest 8k filing with the SEC:

• Price Waterhouse Coopers was fired after 8 years of failed audits;

• Grant Thorton recommended restating financial reports to correct material misstatements; They were fired soon thereafter;

• Grant Thorton files letter with SEC stating material misstatements ont he part of Overstock (SEC)

• CFO resigned January 20th; (SEC)

• SEC begins examining Overstock’s financial reporting;

And where has that led us?

• In the most recent 8k, Overstock admits having to restate quarterly financials from Q1 2008 to Q3 2009;

. . . I suspect there will be more shoes to drop in the future. I also have a suspicion that a few execs and former employees will be getting fitted for state issued orange jumpsuits.

A $5.4 Billion Deal Predicated on Breaking the Law

2010-02-03T13:49:00.009-05:00

The New York Observer has two interesting stories today: the first is, of course, a guest column by yours truly on insider trading, but what caught my eye even more than that was a fascinating inside account of how the $5.4 billion Stuyvestant Town/Peter Cooper Village mega-deal fell apart.

As I've pointed out previously, the nation's biggest real estate deal was also its most odious, because it was predicated on breaking the law--tossing out tenants in defiance of New York's tough rent control laws.

That aspect also made it the nation's dumbest real estate deal, because you can't break New York's rent control laws if the tenants fight, and anyone with half a brain could have told these real estate geniuses that any effort to force out tenants from the two complexes was doomed.

Central to [a real estate broker's] pitch for the complex was that it could be unshackled from rent stabilization (at the time, three-fourths of the apartments were rent-regulated). The offering book repeatedly refers to the complex's future as a "market rate master community." [emphasis added]

Sure, and by the same token if you "unshackle" New York's buildings from the fire codes you avoid the need for useless stuff like fire escapes and fireproof building materials, creating a "firetrap master community."

So the new owners embarked on a program of evicting the tenants, law or no law, and importing yuppies in their place:

Implicit but not specifically stated in these projections was that the rate of deregulation could be dramatically accelerated, a necessarily abrasive effort that tenants dislike. "I think it was pretty clear that the information was projected on what it could be if you managed to get everybody out-that's how people bought it," said one executive familiar with the marketing of the deal in 2006. "When you look at those numbers, the only way it makes sense is if you got rid of the current tenants."
And that was the idea of Stuy Town's eventual buyers. In their loan documents, the Tishman Speyer-led team assumed they could deregulate more than 3,000 units in the four years following the sale, a goal that proved wildly unattainable.

It proved "wildly unattainable" because it was against the law. The tenants fought back, and every since cent charged from the illegal evictions is being recouped, along with punitive damages. The tenants get their bucks no matter what, even in case of bankruptcy.

I'm delighted to say that when the Tishman-Speyer people did indeed succeed in forcing out tenants, they had trouble getting yuppies to move in to these super-ugly housing complexes, which look more like something the Soviets built in postwar Kiev than a yuppie paradise.

I hope that everyone involved in perpetrating this mammoth eviction scheme suffer some real pain. They participated in this deal either out of complete stupidity or malice, knowing that the deal was predicated on breaking the law. They ought to be prosecuted, not pitied.

© 2010 Gary Weiss. All rights reserved.

What Would Safra Do?

2010-02-02T10:54:00.006-05:00

In my column for Portfolio.com today, I write about one of the more interesting people I've ever met: Edmond Safra, the international banking tycoon and former head of Republic Bank, now part of HSBC.

As I say in the column: Whenever I read about bankers being taken to the woodshed, losing enormous sums of money, or otherwise acting like fools, my thoughts go back to Safra. I think to myself, what would Safra do?

Safra died tragically a decade ago, and what's even more tragic is how bankers have failed to live up to the principles that he applied in his operation of Republic. It's been fifteen years since I profiled Safra for BusinessWeek, and I had almost forgotten some of the things that Safra had told me. One stands out in my mind:

"My father taught me that if you loan a man too much money, you turn a good man into a bad man."

If more bankers acted like Safra, and not like Nathan Detroit in Guys and Dolls, the banking industry might not be in a gawdawful mess.

© 2010 Gary Weiss. All rights reserved.

Man Bites Dog in Salt Lake City

2010-02-02T09:11:00.015-05:00

A week ago I described how Utah's two statewide newspapers, the Salt Lake Tribune and Deseret News, had inexplicably failed to cover the departure of a key exec from the corporate crime petri dish in their backyard, Overstock.com.

Today, a week late, the Tribune decided to clue in its readers on the departure of David Chidester, head of internal financial controls, with this article in its business section. It's so lame that the Trib might just as well not have bothered.

Chidester left a day after an article in the Big Money described how Overstock's wacky CEO Patrick Byrne had concocted a sales tax avoidance scheme, "Operation Heist and Freeze," and how the SEC-investigated company had pretty much no internal controls. Both involved Chidester, who was CFO when that was happening.

Byrne was, uncharacteristically, "unavailable," but the Trib quoted Overstock president Jonathan Johnson mouthing this pap:

"David had been with us over 10 years. It felt like for both David and the company it was time to move to something new.
"I don't know who said what first, but it was clearly a mutual agreement. We've grown a lot in 10 years. We are a big organization and thought it was time for both parties to move on."

It's understandable that the Trib would publish this hooey, but less understandable why there is no evidence of a follow-up question, such as "Who is going to take his job?" I mean, he didn't even have to ask the guy anything obvious like, "OK, what's the real reason?"

Apart from that, the Trib did not clue in its readers on just why the Big Money story was relevant. It says only that the Big Money article "said [Byrne] is frequently in the news for alleged 'outrageous pronouncements,' especially connected with his efforts to stop naked short-selling of the company's stock and his battle with" a hedge fund.

"Alleged" outrageous pronouncements? Naked shorting? The article had nothing to do with that, or its junk lawsuits. Actually, the Big Money said that he attacks critics and the media, to prevent journalists from publishing critical reporting on Overstock. I realize the Trib doesn't cover Overstock--that's a given--but at least it could report the truth about Overstock's reaction to the reporters who do write about the company.

Nor is there a mention of what the Big Money did report that was relevant to Chidester: the sales tax scheme or its discussion of the absence of internal controls. It talks about emails involving Chidester and documents, but doesn't describe what they say. But it does quote Johnson as saying that "allegations that Chidester was forced out because of the article [are] 'conjecture' that is 'just wrong.'"

Sure, they would be conjecture, if the Big Money article hadn't specifically dealt with accounting issues, and just had dwelled on Byrne's attacks.

By the way, just assuming for a moment that there is a connection with the Big Money article, or it was other than a happy-as-a-lark mutual thing, this latest Johnson pronouncement means that Overstock has yet another shareholder-disclosure issue. It's not copacetic for a company to publicly lie about why key execs leave.

I really don't know any other statewide newspaper in the country worth its salt that does such a shoddy job of covering a major newsmaker within its borders. Was the Trib deliberately taking a dive for Overstock or does it simply not know how to do its job? I honestly don't know. I will say this about the Deseret News: it's not worried about appearances. It wouldn't write anything negative about Byrne if he was arrested for a triple homicide.

Except for the Big Money and occasional articles in non-Utah newspapers, the only time Overstock's sliminess is ever analyzed is by blogs, notably white collar crime expert Sam Antar. He has a further analysis today of what Chidester's departure means.

I have to admit the explanation Johnson gave is funny. Imagine the following exchange between Chidester and Byrne:

Chidester: Hi there, Patrick. How's it going? You know, I've been with the company for 10 years. I make $300,093 a year, nice stock options, pension plan. Real cushy job. I've really grown a lot.

Byrne: Yeah, you have. Big organization!

Chidester: Yeah, big organization. So I was thinking, hey, cushy job. Grown a lot. No problem, right?

Byrne: No problem at all. Love your work.

Chidester: You do. I mean, you didn't even cut my pay when you demoted me a year ago! I love the work, grown a lot, I'd say it's time to move to something new.

Byrne: Yes! I was thinking the same thing. So shall I issue the customary press release saying what a great job you've done?

Chidester: Naah. Just wait five days and issue a one-line 8-K. That way they'll think I'm being pushed out or quit cause I was mad or something.

Byrne: Yeah! By the way, where are you going to get another cushy 300K job in Salt Lake City?

Chidester: Beats me.

Funny, huh? Too bad for Utahns that the Salt Lake Trib decided to be part of the joke, rather than letting in its readers on the punchline.

Seriously, though, Utahns, whether or not they are shareholders or employees of Overstock, really are short-changed by the neglect of its two major papers. A company is going straight to hell right in their backyard. A little effort could produce some significant journalism--I know that from the trans-continental communications I personally have received. But they just don't have the guts, or competence, to do their job.

It doesn't have to be this way, you know. Years ago, when I was working in Connecticut for the Hartford Courant, we used to get our asses kicked daily in coverage of local businesses (such as General Dynamics and Pfizer) by the The Day of New London. A hometown paper doesn't have to suck.

© 2010 Gary Weiss. All rights reserved.

More Sleeping Media, Illinois Edition

2010-01-28T12:45:00.010-05:00

In a blog post yesterday I described how Salt Lake City newspapers are doing an lousy job of covering Overstock.com and its loony CEO Patrick Byrne, not even mentioning the departure of a key executive. A loyal reader brings to my attention an even more egregious example of journalistic nonfeasance, this one from Illinois.

This involves the governor's race in Illinois, for the seat vacated by Rod Blagojevich, in which Illinois comptroller Dan Hynes is running against Gov. Pat Quinn for the Democratic nomination. An interesting controversy has become a factor in the Democratic race: seems that an employee of Hynes named David Pippy has been posting attacks on penny stock companies on a stock message board.

Here's a report on the subject from a local ABC affiliate in Chicago. Pippy is accused of running into the ground a poor little penny stock company called Prime Star Group, among others, by posting on the InvestorsHub message board. Prime Star is apparently suing everybody in sight.

Now, Pippy should definitely not have been using state computers for stock bashing, or stock pumping for that matter. But state employees are not always the most overworked people in the land, and it's not unusual for them to use their computers for nongovernment purposes. Nor is it strange that a penny stock company says that somebody other than itself single-handedly drove its stock into the ground. If I ever hear of a penny stock company taking the blame for its shares declining, I'll drop dead from a heart attack.

But what I do find peculiar is that the governor of Illinois is buying into this rubbish, and that the state's newspapers aren't calling him on it.

All I could find in the Chicago Sun-Times was this unprobing he-said, she-said account.

All I could find on the Chicago Tribune website is this AP story, which I had to get off Google cache because it's not on the website any more.

Apparently nobody bothered to pull up the latest SEC Form 10-Q for the Las Vegas-based Prime Star, which discloses that the company has $1.4 million in assets, $9 million in liabilities, a $47.8 million accumulated shareholder deficit, no revenues, no sales. In fact, any inquiring reporter could have skipped down to this:

The Company has had no significant operations, assets, or liabilities since November 7, 2005, and accordingly, is fully dependent upon future sales of securities or upon its current management and / or advances or loans from significant or corporate officers to provide sufficient working capital to preserve the integrity of the corporate entity.

Reading through all this crap, what I wonder is this: what in the hell was Pippy doing? I doubt very much that he could have been shorting a stock like this, as penny stocks are very hard to borrow. Maybe he bought the stock and got burned. Or maybe he's just one of those "shareholder vigilante" types I've written about from time to time who just hate overvalued penny stocks. I don't know, and obviously nobody in the Illinois media has ever bothered to ask him.

What I do know is that the idea that he single-handledly drove down the price of this flyspeck company is dubious at best.

Look, I don't care about this company or David Pippy or any of the other people involved in this nonsense, and I couldn't care less how Illinois picks its governors. But all I can say is that Illinois' media seem as FUBAR as its electoral process.

© 2010 Gary Weiss. All rights reserved.

Deja Vu in Times Reporter Banned From Real Estate Event

2010-01-28T09:20:00.004-05:00

The New York Observer reports that New York Times reporter Christine Haughney was denied a ticket to the annual ball of the Real Estate Board of New York. Apparently thr REBNY didn't like her coverage. (H/T, Talking Biz News.)

“As one of the most sought-after tickets, there are always more requests than can be accommodated,” said a REBNY spokesman in a statement. ”We therefore limit complimentary tickets to those members of the media who are assigned to the real estate beat." Translation: the REBNY didn't like her actually covering the last ball, unlike reporters from the trade press who used the opportunity to kiss butt.

I had a remarkable sense of deja vu reading this article, as it reminded me of what the New York Stock Exchange used to do in the imperial heyday of its former chairman, Dick Grasso. Before Grasso was pushed out for being overpaid (flimsy grounds, I must admit), he was noted for using the exchange's annual media soiree as a way of punishing reporters who had crossed him. I was on the no-invite list after running stories on the way the NYSE was manipulating program trading statistics.

It's a shame that little acts of pettiness like this by Grasso didn't leak out at the time. It did reflect on the character of the man, who ultimately embarrassed the exchange and permanently damaged its franchise. There was no Internet in those days, but there was a New York Observer. Which raises another issue, how did the Observer find out? The article says that the reporter and her editor "declined to comment." Hmmmmm........

© 2010 Gary Weiss. All rights reserved.

Put the 9-11 Mastermind on Trial in Otisville!

2010-01-27T17:22:00.005-05:00

Give him a clean shirt and ship his ass off to Otisville

I'm delighted to read today that Mayor Bloomberg has seen the light, and is now against the simply awful idea of trying Khalid Sheik Mohammed in lower Manhattan.

Sure, he was right that trying the Sept. 11 mastermind at the scene of his crimes had a certain panache--and it would be even nicer to execute him there, preferably by something slow--but it just would disrupt the city too much.

I like the idea, suggested by the local community board, to try him at a military base or perhaps the federal prison at Otisville in upstate New York. I especially like the Otisville idea.

Otisville was one of the places that was considered for Bernie Madoff. He wasn't sent there--he wound up in North Carolina--but Otisville is known as one of the repositories for a number of the Wall Street mob defendants. I like the idea of Mohammed being exposed to these particular exemplars of American capitalism, if at all possible. Perhaps they'll teach him a thing or two about stock swindling or IPOs? A new career for New York's favorite jihadist!

Or maybe they'll teach him about naked short selling, and then Overstock.com's crazy CEO Patrick Byrne will really have some to crow about. (And maybe become a neighbor, at the rate he's going.)

Hopefully, after conviction, the feds will give some thought to the "slow execution" idea I broached above. Just a suggestion.

© 2010 Gary Weiss. All rights reserved.