Patrick Byrne Can Run From Tough Questions, But He Can't Hide

To no great surprise, Overstock.com CEO Patrick Byrne turned off the microphone at his quarterly conference call yesterday, refusing to allow questions from white collar crime-fighter Sam Antar--and even breaking his promise to respond to questions that Sam had previously emailed.

As Sam points out in his blog, Byrne's numbers are useless. They can't be accurately compared with prior quarters.

You really have to wonder: Where is the SEC?

The agency now had two investigations pending against Overstock: one probing previous earnings restatements, which clearly pertain to Byrne's creation of a "cookie jar reserve" to manipulate his financial statements, and another, disclosed yesterday, regarding its 2008 Form 10 K/A and second quarter 2009 10Q.

But as the Madoff investigation proved, a determined miscreant can easily shrug off an SEC probe by simply lying. A previous investigation ended without action. Will the SEC drop the ball again this time?

© 2009 Gary Weiss. All rights reserved.

RIP, Sharesleuth Business Model

When Mark Cuban opened his Sharesleuth website three years ago, with a "business model" based on his trading in advance of Sharesleuth items, Cuban smugly heralded the site as the Next Big Thing in financial journalism in a series of arrogant blog posts.

It hasn't turned out that way, as is evident from the latest item. Today the site had an item on Michael J. Xirinachs, a "financier" enmeshed in the fraud involving naked shorting poster child Universal Express. As usual, Cuban hasn't taken a position in any of the stocks mentioned in the item.

That's significant because Cuban is supposed to be financing this site by doing just that. And he hasn't taken a position in any Sharesleuth stocks since this item on a Chinese company in March 2008.

Maybe the reason is his ongoing insider trading case. But I suspect that he hasn't been trading in advance of these items because he can't. There are a lot of good shorting opportunities available among microcaps, but very few of these stocks can be shorted.

In fact, I think it's pretty plain by now that the Sharesleuth business model is dead. Good riddance. It's failure was pretty obvious back in 2007, after it emerged that his trading wasn't the money machine he had anticipated.

This disclosure, if current, shows that Cuban has taken positions in a grand total of three companies, and that just two of his short positions are still pending.

Sharesleuth also has been pretty much of a flop from a journalistic standpoint, and not just because of the obvious ethical issues. It just has not been a particularly useful website. Sharesleuth's output has been sparse--he has embarked on full-scale "investigations" on a grand total of five companies in the past three years, and "short takes" on a few others. The items tend to be overlong and written in police-report fashion, with little context.

When he startd up Sharesleuth, Cuban said as follows in a blog post entitled "Business Journalists Should be Thankful":

If Sharesleuth is successful, you can bet that any of the above with billions of dollars at stake will gladly hire the best and brightest business journalists they can find.Bigger the rolodex, the better. Old is the new young. Crusty is the new Yuppy.They will unleash those journalists to uncover stories that can give them an edge.

That hasn't happened and you know what? I don't know of any investigative journalists who are too broken up about it.

© 2009 Gary Weiss. All rights reserved.

Madoff Lesson: Liars Can Thwart an SEC Investigation

The 536 exhibits released by the SEC Inspector General late Friday on Bernie Madoff don't seem to contain any explosive new revelations, but underscore an essential point about SEC investigations: if you are the target of a probe, just lie, again and again.

The SEC won't check up, even if it's obvious.

Ask Bernie. The documents show that he lied on the most obvious thing possible -- whether he managed money for people. He said no. The SEC either knew this was a lie or was brain-dead not to check up on it, if for no other reason than that there had been two articles in the media in 2001, in Barron's and MAR/Hedge, about what an astounding money manager he was, and raising questions about just how he performed such a fete. (Included among the exhibits is the transcript of a 2009 interview with the author of the MAR./Hedge article, in which he complained that he was ripped off by Barron's.)

Notes to one interview with the SEC in April 2005 say that "Based upon [name deleted] algorithm and capacity to manage money, this led us to ask if [name deleted] (or anyone at the firm) has ever managed money for an outsider. Bemie said, Never."



A few days later, an SEC investigator reported: "I specifically asked Bernie if the London office manages money for outside investors. Bemie said it is my money."



And lastly, here's a record of the cock-and-bull story that Madoff gave the SEC during an interview a few weeks later:


One thing I've learned over the years is that the SEC has a very poor sense of what is actually happening out there in the real world, that it relies too much on documents supplied by the target of the probe, and that it fails to do elementary, shoe-leather investigation. In this case, some basic investigation would have proven that Madoff was lying about a fundamental fact.

The SEC simply didn't have the contacts and street-level sources required to contradict Madoff on something as simple as whether the man ran money for people.

Instead, the probe showed the SEC investigators--one of whom wound up marrying Madoff's niece--tripping over their own shoelaces. Madoff himself marveled at the incompetence of the SEC.

We've seen the SEC's ineptness proven time and time again, such as in its botching of an investigation of Overstock.com's accounting, despite in-your-face GAAP violations uncovered by a whistleblower. The probe has been reopened, but Overstock.com CEO Patrick Byrne has already learned the Madoff' Lesson: Lie, early and often. Lie on your financial statements. Lie in your conference calls. Put aside a "cookie jar reserve" to manipulate your earnings.

The SEC doesn't give a damn.

There are more large and material lies, I hear, unrelated to the financial statements, that haven't publicly surfaced.

Will the Overstock strategy of deception work? The Madoff case is depressing precedent that it will, but the jury is still out.

© 2009 Gary Weiss. All rights reserved.

Patrick Byrne, in Early-Morning Rampage, Makes Another Mess

This is getting monotonous.

I don't call him "my Marley" for nothing. Overstock.com's wacky CEO Patrick Byrne went on a rampage in the wee hours this morning, overturning tables, chewing carpets--and, while he was at it, destroying any pretense of separation between Overstock.com and his personal smear site, Deep Capture.

Seems that Byrne received an email from white collar crime-fighter Sam Antar, whose analysis of Overstock's accounting recently caused the SEC to reopen an investigation of the company. He had made a polite request to appear on Byrne's upcoming third quarter conference call. His email read as follows:

Patrick:

I recently learned that Overstock.com scheduled its Q3 2009 conference call for November 3, 2009. If you agree, I would like to participate in that call like other analysts and ask questions about Overstock.com’s financial disclosures. Please let me know by Monday if you will let me participate in the conference call.

Sam

That will never do. After all, Byrne was expecting his usual audience of quietly terrified brokerage house analysts, asking softball questions and ignoring the elephant in the room--that Overstock has systematically cooked the books.

So Byrne immediately went berserk on his Deep Capture smear site, posting Sam's email and a sneering, Jew-baiting response denying the request, saying that Sam could only ask four questions of up to 25 words, sent in advance via email.

This happened shortly before dawn Utah time. That assumes Byrne actually is in Utah, where he makes believe he runs the company, and not in New York, preparing to march in the Halloween Parade, perhaps disguised as a law-abiding corporate executive.

Byrne has every reason to be terrified of Sam, and to go off his nut whenever he hears from him. After all, if it wasn't for Sam, he wouldn't be under a newly reopened SEC investigation.

But evidently Byrne forgot that he has repeatedly argued that Deep Capture has "nothing to do with Overstock," even though he founded it, funds it, it focuses on trashing the company's critics, and it runs on Overstock's Internet servers. Sam's email had nothing to do with Byrne's pet "naked short selling" cause.

Byrne also forgot that he makes it a practice to open the conference call to persons unaffiliated with brokerage houses when it serves his purposes, notably when he allowed a character named Phil Saunders, a/k/a "Bob O'Brien," to participate in a January 2005 conference call.

If the SEC is serious in its current investigation--which has yet to be demonstrated--it won't shrug off this latest episode as merely another example of a crazy CEO not acting his age.

© 2009 Gary Weiss. All rights reserved.

Bernie Madoff Speaks! (and lies) While Arthur Levitt's Memory Fails Him

Notes of Bernie Madoff's interview with the SEC inspector general were released yesterday, and they make fascinating reading--as long as you keep in mind that Madoff was lying through his teeth, primarily to protect people.

Here's the SEC exhibits page, and here (PDF) is the record of Madoff's interview.

You can be sure that Madoff was lying because of this:

When questioned as to whether he was concerned about Frank DiPascali giving testimony, Madoff answered,"No, he didn't know anything was wrong, either."

In fact, DiPascali, who was Madoff's number two man, has already pleaded guilty, and at the time of his plea in August he said as follows:

“I knew I was participating in a fraudulent scheme,” DiPascali told U.S. District Judge Richard Sullivan. “I knew everything I did was wrong, and it was criminal, and I did it knowingly and willfully. I accept complete responsibility for what I did. I apologize to every victim and to my family and the government. I am very, very, very sorry.”

This is the clearest example I can find of Madoff lying to government officials during the period following his arrest.

However, I'm less dubious about Madoff's statements about how tight he was with former SEC officials and commissioners. Madoff said the following about the super-hyped ex-SEC chairman Arthur Levitt:

Madoff stated that he knew Levitt at Amex, before he was at the SEC, and stated that he knew Levitt "very well." Madoff stated that he went to lunch with Levitt once, to complain to Levitt that he "had to do something about intemet stocks." Madoff stated that Levitt subsequently "went on t.v. and gave a warning about it."

In his interview, Levitt tried hard to convey the impression that he didn't know Madoff from a hole in the ground, though his response was... well, let's call it a "lawyer's response." His memory has failed him when it comes to Madoff, poor dear, preventing him from giving an unequivocal answer:

Mr. Levitt stated that he met Bernard Madoff on an infrequent basis while he was Chairman of the SEC, mostly at seminars or outside functions. He approximated that he saw Mr. Madoff once a year while he was the Chairman of the SEC. He did not recall having lunch with Mr. Madoff and did not believe he ever met with Mr. Madoff alone. Mr. Levitt stated he did not have a personal friendship with Mr. Madoff, had never socialized with him, and did not know his family, other than having met Bernard Madoffs brother.

Note what I've put in boldface italics. He approximated, he did not recall, he did not believe.That's my Artie! The Investor's Champion, to quote a puff piece that I'm ashamed to say once appeared in my alma mater, BusinessWeek.

Yes indeed, you can rest assured that Artie Levitt was no pal of Bernie Madoff (that being an approximation and belief to the best of his recollection).

© 2009 Gary Weiss. All rights reserved.