Goodbye Marc Fagel, and Good Riddance

Routine news from the Securities and Exchange Commission yesterday: Marc Fagel, director of its San Francisco office, was leaving to become a partner with Gibson, Dunn & Crutcher, a leading securities fraud defense firm.

It just seemed like yet another twirl of the revolving door. But it wasn't. This was actually the long-overdue departure of a quintessential example of the "captured regulator."

Fagel was the driving force behind one of the darkest chapters of the SEC's recent history: Its 2006 probe of research firm Gradient Analytics and its client Rocker Partners, and the subpoena of reporters who told the truth about the company that inspired the probe, Overstock.com, and its crazy CEO, Patrick Byrne.

Gradient's "crime" was that it questioned Byrne's management and Overstock's accounting and  earnings capacity, which was richly borne out by future events.

The probe was based on trumped-up allegations of collusion between Gradient and Rocker, as became clear when it emerged that the former Gradient employees who were the SEC's star witnesses -- as well as Byrne's, in a civil suit he had filed -- had been fired for cause. After all the publicity died down, Gradient and Rocker were quietly exonerated.

It was bad enough that Fagel, who spearheaded this wrong-headed witch hunt, let himself be led around by the nose by a CEO who was so unhinged that he directed lewd and obscene remarks to a reporter for Fortune, Bethany McLean, and fantasized that a fictional character from the Star Wars movies had ruined his business.

All this was known to Fagel, and he should have been canned for poor judgment. But on top of that idiotic Keystone Cops routine, there was the little matter of the subpoenas.

They were issued to three leading financial reporters, Herb Greenberg of Marketwatch, Jim Cramer of TheStreet.com,  and Carol Remond of Dow Jones News Service, who had been  critical of the company's management and accounting..

The subpoenas, which were whipped up by Fagel and other SEC lawyers who swallowed Byrne's conspiracy theories, were such a major embarrassment that they made the front page of the New York Times when they were withdrawn by SEC chairman Chris Cox. 

The shamefaced Cox actually scolded his own enforcement division for doing such a harebrained thing.

But it was even worse than it appeared to be at the time. At the same time that Fagel & Co. were chasing their tails at the behest of a nutty CEO, Bernie Madoff was ripping off his customers and the major Wall Street bankers, including many with large operations in San Francisco, were stealing from everyone in sight.

So what happened to the official who dreamed up this absurd waste of government resources? He was promoted in May 2008, just in time to not cover himself in glory during the financial crisis that was in the process of unfolding.

And now he's where he belongs, defending bad guys. Which was pretty much his role in the Gradient/Rocker investigation. Don't let the door hit you on the way out, Fagel.

Byrne, meanwhile, has crawled back under a rock, emerging briefly in January when he was arrested for trying to carry a gun on a plane. Since he no longer can coax regulators to do his bidding, he has taken to crazy rants in his Deep Capture blog, which is run by the disgraced ex-journalist and fantasist Mark Mitchell.

Byrne and Mitchell are now ensconced in a libel suit in Canada that, I understand, will be keeping them both very busy through 2014. The suit against Byrne is such an open-and-shut case of craziness and fabrication -- a minor stock promoter was accused of Al Qaeda connections -- that none of Byrne's dwindling number of pals in the media, not even the Utah press corps, have taken up the cause.

Byrne has since stepped down for "medical reasons." I understand doctors have been probing a rupture in his conscience.

When Byrne was busted in that gun incident, a police report stated that he sleeps with a Glock by his side every night. That's odd. Why does he need a gun, or even a teddy bear, when he has an entire regulatory agency and the likes of Marc Fagel to do his bidding?

© 2013 Gary Weiss. All rights reserved.
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My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

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A (Bio)Vail of Tears

There was weeping and wailing and blubbering among inept CEOs across the land in recent days as a federal court judge threw out a junk lawsuit against hedge fund manager SAC Capital Advisors and Gradient Analytics by the veteran underperforming blame-shifter, Biovail Corp.

In retrospect it was one of more well-engineered blame-shifting lawsuits of recent years, as this cruddy little pharmaceutical company carefully targeted one of the least sympathetic hedge fund managers in creation. Biovail even managed to con 60 Minutes into a brain-dead segment celebrating its cause. But at the end of the day junk is junk, and out the suit went.

Here's the unanswered question: what is the SEC going to do about the larger issue raised by this lawsuit, which is the nagging problem of issuer retaliation? That's the practice of companies retaliating against analysts, investors and other critics. Biovail raised issuer retaliation to a high art, and was filing lawsuits against shorts since back in the early 1990s.

My favorite corporate crime petri dish, Overstock.com, still has a junk lawsuit pending against Rocker Partners, a hedge fund that made the terrible mistake of shorting Overstock's perenially overvalued shares.

It's the aim of issuer retaliation to keep the market from working properly and preventing the free flow of information. Issuer retaliation works, because small research shops can be bled white by lawsuits, while public companies have plenty of shareholder money to use for lawyers.

The SEC has neglected issuer retaliation entirely, while sometimes paying lip service. SEC chairperson Mary Schapiro won't even do that. After all, talking about blame-shifting lawsuits won't put her on the cover of Equities magazine or other stock-pumping rags.

Getting off her fanny and doing something about it won't win her any political brownie points, but it might actually change the direction the agency has taken since slip-sliding into corporate-protection mode when Harvey Pitt slithered onstage in 2001.

© 2009 Gary Weiss. All rights reserved.

Overstock.com's July Festival of Misleading Press Releases.

It's hard to ignore my favorite corporate sleazebucket, Overstock.com, no matter how restful it may be to do so. In recent days, this third-rate Internet retailer and its looney-tunes CEO Patrick Byrne have treated us to the latest examples of their favorite product: false and misleading press releases.

The latest is a press release yesterday that, as swallowed whole by some in the media, indicates that Byrne is engaged in a humanitarian quest: he has stopped selling fur products. Isn't the man an absolute doll? However, as pointed out by a Baltimore Sun blog, it's quite obvious that Byrne has taken this action because of a belated discovery that he had been selling dog fur.

Puts a different spin on it, don't you think? Evidently Overstock's ace buyers were showing their usual competence. Overstock is foregoing $5 million in annual sales by this move, but "what’s another $5 million for a company that’s been bleeding red ink since it went public? ," asks Tracy Coenen. (Mind you, that is $5 million in "Patrick Byrne dollars," which is hazardous to translate into actual revenues.)

Next we go from hokum to outright lying: a press release the other day indicating that Overstock had a "favorable court ruling" in its ongoing junk lawsuit against Gradient Analytics. However, as Gradient pointed out in a counter-press release, this was actually a big fat defeat.

All in a day's work for Patrick Byrne, I guess. Hey, he's not a perennial on "worst CEO in America" lists for nothing

© 2008 Gary Weiss. All rights reserved.

Patrick Byrne Fails to 'Celebrate' Lawsuit

Displeasure in the executive suite at Overstock.com

Patrick Byrne, the CEO of Overstock.com and the clown prince of small-company charlatans, had a minor meltdown in reaction to an announcement by Gradient Analytics that it is filing a libel suit against Byrne.

Compare that to a taunting Overstock press release in March 2006 that urged Gradient to take action against his company.

So why has he not "celebrated" the libel suit, the way he once "celebrated" an SEC subpoena?

Gradient is the independent research firm that was targeted by Byrne after it published accurate, but damning, research exposing the company's financial weakness. Any kind of criticism sends Byrne off the deep end, and the accuracy of Gradient's research is indicated by Byrne's reaction, which was filing a baseless lawsuit against the company and a hedge fund.

As noted in the Salt Lake City Tribune article, an SEC investigation of Gradient, paralleling Byrne's accusations, was dropped by the SEC, but a probe of Byrne by the SEC is still pending.

Byrne then went on a campaign portraying himself as a "victim of hedge funds," even though he used to be in the hedge fund business himself, has a brother who runs a hedge fund, and a hedge fund ("High Plains Investments") is the entity through which he owns Overstock shares. Hypocrisy, of course, is one of Byrne's more flattering characteristics.

The Business Law Spot blog weighs in:

As I've said before, the "Litigation Road to Success" business model is at best highly questionable and should be avoided (Ask Darl McBride.). If your company is bleeding cash, your time is better spent fixing your company, not riding off on crusades.

UPDATE: A fine follow-up in Portfolio.com, replete with a link to the suit.

© 2008 Gary Weiss. All rights reserved.

Deja Vu at Biovail

If the fraud charges against Biovail lodged by the SEC yesterday seem familiar, there's good reason. Gradient Analytics, the victim of a junk lawsuit by Biovail, noted in a statement today that the SEC's charges against the crummy Canadian drug maker track closely with what Gradient said about the company quite some time ago.

Gradient says in its release, not online at the moment, that "its research into Biovail from 2002 to 2003 identified the same issues that are now the centerpiece of the accounting-fraud charges supporting the U.S. Securities and Exchange Commission complaint against the pharmaceutical company."

Gradient noted that Mark Schonfeld, head of the SEC's New York office, gave credit to analysts who raised questions about Biovail, saying on CNBC that “Part of the credit does go to people who were asking a lot of questions and were rightfully skeptical when the company was making representations that just didn’t quite make sense.”

That's lovely. But it leaves open a question that continues to linger: why hasn't the SEC acted against Overstock.com, which also is the subject of accurate reasearch by Gradient, and which also has lashed out against the firm with a lawsuit?

The SEC should punish Biovail and other corporate slimeballs for their retaliation against analysts and short-sellers, and force them to terminate their blame-shifting lawsuits. It's lamentable that a Spitzer-like state regulator is not leading the charge on this -- which might explain the venom that Overstock.com CEO Patrick Byrne expressed toward Spitzer recently.

© 2008 Gary Weiss. All rights reserved.

Nothing New Here, Just Selective Disclosure

What would be serious business for most U.S. public companies is routine, even humdrum at the corporate train wreck Overstock.com. Thus comes word today that Overstock committed a serious violation of SEC Rule 10b-5.

Reformed felon and corporate crime expert Sam Antar has the scoop in a blog post today.

On Feb. 12, Overstock issued a press release celebrating a minor turn of the screw in its junk lawsuit against Gradient Analytics, an independent research firm that dared to sue the company.

But Overstock "forgot" to mention that Gradient was countersuing.

That's what's known as "selective disclosure," a violation of SEC Rule 10b-5. Can't just release news favorable to you. Kind of obvious, you might think, but this is Overstock.

According to the SEC:

Section 10(b) of the Exchange Act and Rule 10b-5 proscribe, among other things, misstatements of material fact made in connection with the purchase or sale of securities. Information is material if there is a substantial likelihood that its disclosure would be viewed by a reasonable investor as having significantly altered the total mix of information available.

Right. Such as disclosing the latest news in your fave junk lawsuit and keeping out the stuff that don't look so good.

To make things worse, it seems that the market reacted favorably to the news, which it wouldn't have done if the Gradient cross complaint was disclosed.

I wonder if the SEC will react quite so favorably?

The feds should certainly take special notice, in their ongoing investigation of Overstock, because of the importance Overstock has attached in the past to a Gradient countersuit. (Thanks to John Lichtenstein for jogging my memory on that.)

Overstock put out a press release in March 2006 entitled, "Overstock.com to Gradient Analytics and Rocker Partners: Where's the Countersuit You Threatened?"

Here's the press release. CEO Patrick Byrne is quoted in the release as saying as follows:

Eight months ago Gradient and Rocker were thumping their chests threatening to counter-sue us. I said at the time that they would not because these miscreants could not survive the discovery a counter-suit would trigger. They still have not filed suit, and now, once again, they are doing whatever they can to stall the discovery process. I once again invite them to counter-sue, and let us move to discovery quickly.

So now both are countersuing, and Overstock does not view this as being as worthy of disclosing as its taunt.

Also notable is this: Instead of "welcoming" the countersuits, the legal papers on Sam's site indicate that Overstock is moving to quash the one from Rocker, which was filed some weeks ago.

Gosh, I thought Overstock wanted "discovery." What has this slimy little company got to hide (as if we didn't know)?

© 2007 Gary Weiss. All rights reserved.

A Victory Over Pretexting: One Down, One to Go

Hewlett Packard has paid a hefty but undisclosed sum to reporters for Business Week and the New York Times, to settle the widely publicized pretexting scandal. Gumshoes for the company had lied to get phone records and other personal information from reporters.

Hewlett Packard had the decency, belated as it was, to admit fault and act to set things straight. Contrast this with Overstock.com, which openly engages in pretexting via its nauseating in-house stalker, Judd Bagley.

Bagley freely admits to lying about his identity and planting spyware in emails, with the goal of intimidating critics and suppressing criticism of the company.

Overstock is under SEC investigation, but it is time for a criminal investigation of Overstock's and Bagley's conduct.



The telegenic lifelong bachelor has boasted on his blog about having "8,000" emails demonstrating his various conspiracy theories -- including "1,841" from me that, as he describes them, would be forged if they are not figments of Byrne's lurid imagination. The SEC needs to subpoena those "emails" in its ongoing probe, and include this sordid company's pretexting and smear campaign in whatever action it eventually takes.

At least one forged email was offered up to a reporter for The Register, an Internet tabloid, who was researching a hatchet job on Wikipedia. The SEC needs to find out who forged those emails (as if we didn't know) and make an appropriate criminal referral.

UPDATE: There's a persistent rumor that Gradient Analytics has filed a countersuit in its long-running legal battle with Overstock. Actually a bit more than a rumor, as the source is the well-informed scambuster, Sam Antar.

Funny that it wasn't disclosed -- even as Overstock belched forth an update on a minor turn of the screw in said litigation. (I would say "SEC take notice," but even the sleepiest SEC investigator would notice this one.) Gee, is it bad when a company discloses only the aspects of ongoing litigation that make it look good?

© 2007 Gary Weiss. All rights reserved.

More Troubling Questions For Overstock.com

White collar crime expert Sam Antar has a sizzling post today, based on a close reading of Overstock.com's Form 10-Q.

Two words: Read it!

Four more words: Where is the SEC?

Byrne is well advised to stick to his knitting -- not running his company -- as his nascent career as a political thinking is not doing all so well. He continues to spread sweetness and light in Utah, where his ancestral wealth failed to persuade voters to adopt a program of school vouchers.

Having previously made racist remarks concerning the expendable character of non-graduating high school students, Byrne has now made some pretty nasty comments concerning Utah voters -- saying they just weren't smart enough to realize the wisdom of school vouchers. That drew this justifably angry response in the Salt Lake Tribune from a Utah academician:

I am sure the vast majority of Utah voters are as deeply offended by the
arrogant comments of Overstock.com CEO Patrick Byrne as I am.

Byrne accused Utah voters of failing a statewide IQ test because they voted down Referendum 1. I believe just the opposite occurred in the election. Voters examined the issue thoughtfully and simply said no.

Over the past few months I have been very impressed with the high level of interest and the even higher level of discussion over this referendum by the people of my own community, the Uintah Basin.

Questions were asked by concerned citizens on each side of the issue, and I heard many insightful answers. Even though I am a member of the education community I approached this issue with an open mind, as did most people I encountered. We all want the system of public education to work better.

Utah voters were not "brainwashed" by any teachers' union. We made an informed decision. Obviously, it was not the one Mr. Byrne wanted us to make, but that is no excuse to insult the intelligence of Utahns. My experience was that Utahns cared deeply about this issue and studied it intensely, and that is why Referendum 1 was defeated.

I assume that at least some of those "stupid" Utah voters are -- that is to say, were -- Overstock.com customers.

UPDATE: Sam Antar delves into the devastating accusations of the Gradient Analytics-Copper River countersuit.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Byrne a No-Show at the SEC

As I reported a few days ago, white collar crime fighter Sam Antar challenged Overstock.com CEO Patrick Byrne to meet with him on Wednesday at the Salt Lake City office of the SEC.

The aim was to get Byrne to answer, on the record, the dozens of questions that have arisen in recent months about Overstock's slippery accounting and ethical lapses. The venue made sense because the SEC is conducting a formal investigation of both Overstock and Byrne.

Well, guess what? Sam was there-- he had just given a talk to the Utah Attorney General's office -- but Byrne was a no-show. Sam Antar's blog has all the details.

My suspicion is that Byrne was too busy using corporate resources to defend his dumb remarks on race and school vouchers, as AOL blogger Zac Bissonnette has noted in his blog. Or maybe he just doesn't have the guts to face Sam without a retinue of lawyers present.

Of the many dozens of questions that Byrne is dodging, here's one that I'd like to have heard answered: at a recent conference call with analysts, Byrne pretended to invite questions from Sam, knowing full well that he was not participating in the conference call.

Is that a legitimate thing to do during a publicly broadcast conference call, or does it fall afoul of the securities laws? Byrne surely knew that Sam was not participating in the call. A list of participants is known to Overstock's investor relations people at the beginning of a conference call.

This is just one of many deceptive and deceitful tactics Byrne has employed over the years, as Sam has chronicled. However, he won't be able to duck these issues for very long. In addition to the SEC probes, Rocker Partners and Gradient Analytics have are preparing a counterclaim against Overstock's junk libel suit, according to Dow Jones news service.

People familiar with the matter said Rocker will allege in its counterclaim that Overstock and its CEO orchestrated a short squeeze to boost the company's stock in violation of a California securities statute. The fund is likely to claim that Byrne made false statements, perhaps through the use of Internet bloggers, in order to inflate the price of his company's stock in violation of California Corporations Code.

The "bloggers" mentioned in this article probably include thesanitycheck.com, which the New York Post has revealed is operated by a former used medical equipment salesman named Phil Saunders. Cringing behind the pseudonym "Bob O'Brien," Saunders used the blog and Internet postings to spread nutty conspiracy theories, sling mud at Byrne's critics, and to give Byrne a kind of de facto investor relations mechanism. Saunders also was active in touting a dreadful subprime lender called Novastar.

Thesanitycheck was at one point promoted on every Overstock website page, under the misleading link title "Market Reform." Since that ceased. the site's readership has dropped to practically nothing, according to Alexa.

The discovery proceedings in this suit are going to be interesting.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Patrick Byrne and His Three Stooges

Overstock's star witnesses

One of my favorite movies when I was a kid was The Three Stooges Go Around the World in a Daze. I was thinking of that movie today as I read an item in Sam Antar's blog entitled "Patrick Byrne and his Three Stooges."

Instead of Moe, Larry and Curly, we have Demetrios Anifantis, Robert Ballash, and Darryl Smith, former employees of Gradient Analytics who figure in Overstock's junk lawsuit against Gradient and Rocker Partners.

In his blog item, Sam analyzes -- as in "rips to shreds" -- their "conflicting, inconsistent, and contradictory allegations." Note that Overstock's wack-a-doo CEO, Patrick Byrne, co-stars as straight man (and script writer, it would seem).

After reading Sam's item, you will wonder, as I have, why Byrne is "celebrating" a lawsuit in which his principal witness are these three characters. Is he taht detached from reality?

While it is a shame that Gradient and Rocker have to spend thousands of dollars defending themselves from Byrne's schlock claims, there is no question that civil discovery proceedings will be in the public interest. They will aid the SEC's investigation into the company as well (and vice versa, of course).

Junk lawsuits are bad, but this one is going to be interesting.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.