Can Overstock.com Get the SEC Off Its Back?

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.

Patrick Byrne Admits Funding Dirty Tricks Operation

Throws down the gauntlet to the SEC

(See Update: Overstock cleaned up after Byrne's latest mess by issuing an 8-K)

A chilling story is out today in the New York Observer on Overstock.com's dirty tricks operation. Apart from the usual "oh my goodness" stuff, what's most interesting from a securities fraud perspective is further evidence of how Overstock.com CEO Patrick Byrne is flouting SEC disclosure rules.

First, Byrne has failed to disclose in any Overstock filing his ownership and ongoing financing of the "Deep Capture" astroturf website. The article made clear that it's his website, bought and paid for with a cool half million bucks, making rather pointless his efforts in the past to erect corporate shells to disguise his role.

The second and more clear cut violation of the securities laws is his flippant, almost giddy disregard of Regulation FD:

. . . Overstock does not enjoy getting into why it’s never recorded an annual profit in its history. (Mr. Byrne, though, said at deadline that the company is about to report its first annual profit. “I’m probably going to get a lot of shit for having said this,” he offered.)

That's entirely possible, but it depends on how serious the SEC is about enforcing Regulation FD, as in "fair disclosure." That's designed to ensure investors get material information uniformly, and not through the online editions of newspapers not ordinarily read by investors in Utah stock frauds, and teasers planted on bulletin boards ("PS: Patrick gives some interesting "guidance" in the piece. You OSTK investors will probably appreciate it.")

I'll be interested to see if Overstock wipes up after this latest mess by issuing an 8-K before the start of trading today. Whether it does or not, Byrne has just thrown down the gauntlet to the SEC, and it's up to them to accept the challenge or, as usual when crooked execs throw down gauntlets, do nothing.

"Profit" of course is an elastic term as Overstock, which is why the SEC is investigating its accounting.

You can't write about Byrne or his nauseating lackey Judd Bagley without being grossed out, so we have this creepy bit of stalking:

. . . Afterward, he was looking on a map to get his bearings. “And I saw this little cul-de-sac. I thought, ‘I know I’ve heard of that before.’ And I remembered, ‘That’s right! Gary Weiss lives there. So I just kind of walked down it.”

Bagley was off target. We haven't many young kids for him to stalk where I live, but there's a public school just around the corner.

“Posting the name of my 16-year-old son, what did that prove?” said the Barron’s editor Eric Savitz.

Well, I guess it proves that Bagley is a special kind of douchebag, as this article makes abundantly clear. But you have to admit that he's a well-financed douchebag.

The article was written by Max Abelson, who shares a surname (I don't know if he's related) with Alan Abelson of Barron's. Alan Abelson years ago was subjected to constant legal harassment by bagholders of companies he wrote about, who blamed him for the decline of stocks in which they invested. The only thing that's changed is that the harassers are getting scummier, and that they're going after families.

The parting shot from Barry Ritholtz is probably the best description of naked shorting that I've ever seen:

“It’s like a guy leaping off the Empire State Building, and he hits the pavement, and it turns out he also has high cholesterol,” Mr. Ritholtz said. “When they do the autopsy, I don’t think they’ll give a fuck about the high cholesterol. Naked shorting is the high cholesterol.”

UPDATE: BusinessInsider reminds me that Byrne, reconfiguring his nutty "Sith Lord" rant from 2005 is now saying there is not one but two "Sith Lords": Michael Milken and Steven Cohen of SAC Capital. Sort of the Sith Lord Twins. I'm surprised he didn't throw in Bernie Madoff and Al Capone, to make it a quartet.

A sarcastic message board post sums up Byrne's latest self-created problem: "An annual profit! Wow! OK, I am changing my sentiment to STRONG BUY, because of this information. . . . Now that I have changed my sentiments based on this statement by Mr. Byrne, I am going to start searching for the Reg FD filing."

Late in the day, Overstock's legal beagles shot over to the SEC a clean-up-the-latest-Byrne-mess filing, with the Observer article attached, but they were tardy. The filing came after the market closed, after an illegal runup of the stock, which ended up nearly a percentage point.

Ahem. I call that closing the barn door after the cow, or in this case the Reg. FD violation, had gone.

The filing says basically nothing: "The Company has not yet completed its financial statements for the year ended December 31, 2009. The Company intends to issue a press release containing financial results for the year ended December 31, 2009 when they are available." So what is that supposed to mean? That just makes the whole thing murkier. This is one of the weirdest 8-Ks I've ever seen, even from these buffoons.

This has happened before. Let's face facts: Patrick Byrne does not like abiding by the securities laws. I mean, they're not included in the envelope with the check that comes every month from the trust fund, so why should he obey them?

By the way, when Byrne said “I’m probably going to get a lot of shit for having said this,” the term of art for that is scienter.

© 2010 Gary Weiss. All rights reserved.

Patrick Byrne Speaks, Lawyers Salivate

Oops!

Overstock.com's dipsy-doodle CEO Patrick Byrne, appearing on CNBC on Friday, painted a glorious picture of Overstock's Christmas season, but let something slip: everything was going well except "gross margins."

Oops!

Henry Blodget picks up the story:

If Byrne planned to mention the margin compression before the CNBC shoot, he apparently didn't tell his lawyers, because the company rushed to release an after-the-fact Reg FD press release this morning reiterating the comments.

Overstock was down 21% today, on heavy volume, as a result.

The Overstock press release was a real piece of work. Get the title: "Overstock.com Comments on Patrick Byrne's CNBC Interview." When was the last time you heard about a company "commenting" on its own CEO's interviews?

Blodget's piece was entitled,"CEO Byrne Speaks, Lawyers Panic." His lawyers, perhaps, but the lawyers suing him, at the SEC and elsewhere, are salivating.

In another appearance on Friday, on Fox, Byrne suggested that people not buy his stock, and said that it was being "manipulated."

That's for sure.

© 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.

Overstock.com CEO Patrick Byrne Posts on Internet During Conference Call

I've marveled in the past (see this post and others) about Overstock.com CEO Patrick Byrne's self-destructive Internet addiction -- how he has dragged his wretched company through the mud via skeevy, sometimes foul-mouthed posts in which he rarely identifies himself as CEO (shades of Whole Foods CEO John Mackey).

I only found out today how really bad off he is,Internet-addiction-wise.

I was dozing through the Overstock.com quarterly conference call this morning, numbed by the always-dubious financial gobbledygook and Sith Lord Chewbacca. After all, there's really no way of distinguishing facts from exaggerations and hocus-pocus until afterwards, when his version of reality is dissected by accounting-fraud-watchers like Sam Antar and Tracy Coenen.

So I wandered over to the Investor Village message board. I saw this:



Note the time: 11:43 a.m., eastern time. The conference call, which began at 11 a.m., was still underway when he posted that "attaboy" response to loyal corporate shill Evren Karpak. It didn't end until 12:15.

Yep, like me, Byrne was obviously bored to tears listening to tiresome stuff like whether or not his cruddy company is ever going to make a buck, so he went over to the Overstock message board at Investor Village. Just as I did, except that he's the CEO of the company, supposedly focusing on the questions being directed at him.

"Hannibal" is his anonymous user ID. Since he did not sign the post, as usual, most people looking at that post would have no idea that the CEO of the company was posting on the Internet during the company's quarterly conference call. Which is why Byrne's defiance of Regulation FD is not a very good idea.

Ironically, in that same conference call Byrne whined about all the criticism of his Internet posts, and claimed again, falsely as usual, that he doesn't post online under pseudonyms, a la Mackey. This right in the middle of proving that what he was saying was a flat-out lie.


Amazing? Not by Patrick Byrne standards. Over the weekend he made a fool of himself on the Slashdot website, weighing in on a discussion about whether Wikipedia (with which Overstock is competing via "Omuse") is "infiltrated by foreign agents."

I'm not making this up. Read his contribution to the loony discussion here. His director of communications and in-house stalker, the nauseating Judd Bagley, was doing the same thing -- via pseudonyms "WordBomb" and "writerjudd" -- on Slashdot and the Wikipedia Review anti-Wikipedia site. On neither site did Bagley identify himself as an official of Overstock.com.

One might think it odd -- and legally questionable -- that two officials of a company seeking to compete with Wikipedia, through their laughable "Omuse" wiki, would try to undermine Wikipedia. The media, however, has become a bit numbed to Byrne's disgraceful conduct and has largley given him a pass. Regulators, though investigating Byrne and Overstock.com, have so far taken no action.

I wonder if this head-in-the-sand attitude is justified for a company that makes a mockery of corporate ethics.

UPDATE: Tracy Coenen translates the conference call from Byrne-speak into English.

© 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.

The Score at Halftime: Mackey 1, Byrne 0

It's interesting to contrast the heartfelt (if belated) apology released today by Whole Foods CEO John Mackey with the swinish, sick rant unleashed by Patrick Byrne yesterday.

Both engaged in inappropriate, probably illegal conduct on message boards. Mackey is starting to "get it," while Byrne is in a paranoid haze of denial.

Contrast too the internal investigation launched by the board of Whole Foods with the inaction of the famously inert Overstock.com board of directors.

That's the difference, I guess, between integrity and sleaze.

© 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.

Yahoo Message Board as 'Blog'

The Wall Street Journal today had an entire editorial devoted to Whole Foods CEO John J. Mackey's "anonymous blogging".... except.... except.... he wasn't blogging.

Well, he did have a blog, but that was under his own name.

At issue is not his blogging but his posting on a Yahoo message board devoted to Whole Foods stock. Big difference.

When not misunderstanding what Mackey was doing, the rest of the editorial was an attack on Regulation FD. That seems to be the position taken by Mackey as well: "Regulation FD be damned."

I just wish that defenders of Mackey would have the intellectual honesty to simply come out and say it.

© 2007 Gary Weiss. All rights reserved.



-----------

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.

Today's Patrick Byrne Lie Du Jour

From a New York Times article in tomorrow's newspaper on the John Mackey message board postings, online tonight:

Patrick M. Byrne, founder and chief executive of the beleaguered online retailer Overstock.com, has for years been accused of anonymously resorting to the Internet to do battle with his company’s critics. In an interview, Mr. Byrne said that he never hides his true identity and always signs his name when he posts under his online handle, “Hannibal” (the Carthaginian conqueror, not the celluloid serial killer). [emphasis added]

Oh really? Here's Byrne's most recent post on the Investor Village message board for discussion of Overstock.com (not naked short selling or Sith Lords or bodies in trunks):



Hmmm...... seems that he forgot to sign it. Oh my.

That is not the exception, that is the rule.

Here are the name-signing stats for Byrne's "Hannibal" posts on the Investor Village Overstock.com message board, toted up by Internet sleuth "Scipio Africanus":

• 1 signed as "Patrick Byrne, CEO"
• 3 signed as "Patrick Byrne"
• 57 signed as "Patrick"
• 34 unsigned - including one "Kreskin", one "PB" and one ";-)"
  

And I would add:

• 0 that disclose that he is the largest shareholder of Overstock.com.
  

Here's a link to all the Byrne posts on IV. A strong stomach is not required but recommended.

His profile is, needless to say, "private."

His previous postings on the subscription Motley Fool board followed a similar pattern, and also was hidden behind a profile not containing his real name.

Before that, he posted anonymously on the "fuckedcompany.com" message board, although those posts have been mysteriously deleted.

One oddity about the article: I'm not sure where the Times picked up about Byrne being accused of sockpuppeting. I haven't read that anywhere. The issue is much more serious, as I have discussed in several recent posts, most recently this one.

I'm more than a little surprised that the Times didn't talk about his "I'm a journalist" cock-and-bull story. Makes me wonder: is the media intimidated by Patrick Byrne's well-documented record of "going after" critics?

Anyway, don't feel too harsh about Byrne Lie No. 2343100. The Mob is out to get the poor dear.

UPDATE: Fraud-fighter Sam Antar recounts in his blog the consequences of asking Byrne to do what he said he did in the Times:

On January 29, 2007, in a post (message number 4166), on InvestorVillage, I asked Patrick Byrne to clear up the confusion:

"Hannibal:

Can you please sign your post with your full name so there is no misunderstanding as to who is replying?

Patrick Byrne (CEO of Overstock.com) uses the handle Hannibal. Let's clear up any misunderstanding as to who is responding. [emphasis added]

Respectfully,

Sam E. Antar (former Crazy Eddie CFO & convicted felon)"

Patrick Byrne chose not to reply to the above question. Later, he complained (message number 4463) that I was acting as a “Junior Prosecutor" and asked other message board readers to ignore me:

"Is there anyone here who suspects that Sam is just trying to clog, or waste my time, or misdirect this discussion board? If you agree, please recommend this post. If we get over 20, I say that is proof that it is time we all agree to ignore Sam forever." [emphasis added]

The management of Investor Village obediently banned Sam from the Overstock message board.

Forensic accountant Tracy Coenen observes:

It’s bad enough that Byrne is not clearly and publicly disclosing his identity when writing messages about Overstock.com, but it’s even worse that he lies about it and makes it seem like he does always disclose it.

Byrne hides behind the First Amendment and free speech. Well…. he may have the right to say what he wishes about Overstock, but Regulation FD dictates how he must do that when his free speech relates to Overstock, the public company which he runs.

Byrne later tried to reconcile his lies in a rambling, psycho rant.

© 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.

Extra! Extra! Patrick Byrne Changes Careers!

I have found the reason why Patrick Byrne, CEO of Overstock.com, behaves more like a spoiled prep school brat than a corporate executive. Turns out he's not a corporate official who must abide by the rules required of heads of public companies.

Nope, he is a "public figure" and above all a "journalist," a member in good standing of the fourth estate.

This latest fantasy can be found in a post by Byrne, one that has received little attention, on his personal Overstock.com blog.


John Mackey, the Whole Foods CEO, needs to pay attention as he deals with an SEC probe -- see Tracy Coenen's analysis. This journalist stuff may be nutty (hey, this is Patrick Byrne we're dealing with), but the insanity defense has worked for some.

Instead, the media has focused on the rather pedestrian list of excuses that Mackey has given for posting anonymously on Yahoo message boards. Compare that logical if misguided list with Byrne's rambling fish story, which clearly bespeak a man who believes that his ancestral wealth inoculates him against the consequences for telling even the most blatant lies.

Some excerpts from Byrne's missive:

"I tend to discount the thoughts of anyone who insists upon anonymity (unless there is a real security concern). This applies to everyone, whether they be executives or not."

This is an astounding lie, even for Byrne, because he has a record of embracing, endorsing and promoting anonymous Internet crackpots when they favor his cause.


He has promoted on CNBC (left) a wacko anonymous website run by Phil Saunders, a former used medical equipment salesman who runs the "sanitycheck" stock market conspiracy website under the pseudonym"Bob O'Brien." This anonymous, creepy website was for months endorsed on every page of the Overstock website as a link misleadingly labeled "market reform."

But above all, Byrne has personally endorsed and promoted an anonymous website run by his director of communications and spokesman, the nauseating Judd Bagley. The latter runs Overstock.com's antisocialmedia.net corporate smear site, which began anonymously and was later outed as an Overstock enterprise by the New York Post and by Internet sleuths.

Byrne has enthusiastically endorsed those anonymous sites, which have aggressively smeared his critics and act as fan sites and PR vehicles for Byrne and Overstock.

Second, no executive (or for that matter, any employee) should ever go online to talk up her own company’s stock or try to bash a competitor’s stock price.

But as I have pointed out before, Byrne did just that at the tail end of a Motley Fool post in March 2006 (below).



His drumbeat of attacks on critics -- most conspicuously Herb Greenberg of Marketwatch.com-- are clearly designed to reassure his core buy-and-hold investors that they should not sell their shares.

I think that when a person decides to become a public figure he is relinquishing his ability to take part in public discourse without identifying himself, simply as a matter of etiquette, not law.

This would explain why he disregards Regulation FD by using the screen name of "Hannibal," not signing his full name, and not saying that he is CEO and chairman of the board of Overstock.com and its largest shareholder.

All that said, there is nothing about being a public figure compels one to surrender one’s 1st amendment rights.

Ditto. He views himself not as a corporate officer whose public statements are governed by SEC rules, but as a "public figure" who hsa "rights" under the First Amendment but no obligation under Reg. FD.

After claiming that some anonymous ID on the Yahoo boards is an Amazon employee, we get the pièce de résistance:

As a journalist, I cannot reveal my source for this information.

Oh, and that brings me to the title of this compendium of doubletalk and lies: "A thing called, "the 1st Amendment."

Translation: "SEC, Bite Me."

© 2007 Gary Weiss. All rights reserved.



-----------

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.

Is Mackey Too Wacky to be CEO?

That excellent question is tackled by Fortune writer Matthew Boyle, as the media continues to come to grips with the spectre of a CEO, John Mackey of Whole Foods, posting anonymously about his company on Yahoo message boards.

"It is time to boot this guy out, but I doubt the board will," he quotes Jeff Sonnenfeld, a "CEO and leadership expert" at the Yale School of Management.

The reason he needs to go, however, is not that he is wacky but that what he did was against the law, including but not limited to Regulation FD. The media finally began to grapple with that elephant in the room, which I dealt with in my post yesterday.

The Wall Street Journal missed the point entirely, comparing Mackey's anonymous posts to signed blogs, which are an entirely different kettle of fish. The New York Times recognized the legal issues, however:

Peter J. Henning, a professor of securities law at Wayne State University in Detroit, said executives of public companies are required to make financial disclosures available to all investors, not just a select few.

“He wasn’t speaking on behalf of the company,” Professor Henning said, adding, “He certainly was talking about it. And he was attempting to influence the stock price.”

After hearing some of Rahodeb’s postings, Professor Henning added, “I would have to believe that Whole Foods’ general counsel nearly keeled over when they learned about this.”

Mackey clearly requires the kind of supine board and see-no-evil corporate counsel employed by that other compulsive message-board user, Overstock.com CEO Patrick Byrne, who also treats Ref. FD as a joke.

So far, both CEOs are blessed with something even greater -- a snoozing SEC.

Herb Greenberg points out that Mackey anonymously attacked him, an interestingly Byrne-esque thing to do.

More reaction:

The White Collar crime blog discusses the possible legal ramifications.

Several commentators noted the obvious Byrne-Mackey parallels. Lee Distad says he

will . . . go out on a limb and say that the Whole Foods story will diverge from the Overstock.com train wreck sooner rather than later. I forsee that John Mackey will be sent packing by his own board, under pressure from regulators and the media.

Why?

Because Whole Foods makes money. Because they're successful. Because there will be a lot of concerned parties on Wall Street with a vested interest in making sure that Whole Foods continues to succeed. Now that Mackey has shown what kind of thoughtless, half-cocked decision making he's capable of, he's a liability. Those concerned will want to have him ejected before he does something that scuttles the ship.

Compare that to OSTK, whose vested interests are limited solely to buy-and-hold investors who still believe in Santa Claus, and are still praying that one quarter, any quarter, their baby will show a profit. If your company was as beneath most people's radar as Overstock.com, you might resort to public temper tantrums to get attention too.

Long or Short Capital:

Following in the big clown shoes of Patrick Byrne of Overstock.com (NASDAQ: OSTK), [Mackey] thought it would be a good idea to post to an anonymous stock message board about Whole Foods. The company for which he is the CEO. Protected only by the anonymity of an anagram of his wife’s name. I’m undecided if it’s a better or worse call than being a bat-crazy Quixote in public like Byrne. This is less ethical but more competent as as opposed to more ethical and less competent. But this is decidedley worse than not wearing a condom in Haiti, which is our standard threshold for management competence.

For this focused non-dedication to competent and sensible management, we award John “Rahodeb” Mackey with The Patrick Byrne Award for Operational Focus and Excellence. May all your current and future stockholders be warned.

UPDATE: Evidently the politically-hypersensitive SEC chairman Chris Cox knows how to read. The Wall Street Journal online edition reports today that the SEC has launched an informal inquiry, according to the usual "people familiar with the matter."

One of these days, a cultural anthropologist should track down when "people familiar with the matter" replaced "sources" as a euphemism for "a spokesman for Chris Cox."

© 2007 Gary Weiss. All rights reserved.



-----------

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.

John Mackey, Patrick Byrne, and a Snoozing SEC

Today the news wires are buzzing about an amazing tale: the CEO of a public company, John P. Mackey of Whole Foods, systematically posted messages under a pseudonym on Yahoo message boards. The media is astonished: "How Whole Foods C.E.O. Led 2 Lives," gasped the New York Times Dealbook. I guess you can call Mackey the Lon Chaney of Corporate America.

Mackey, it seems, posted anonymously on message boards to bash a competitor and boost the company's share price -- amazing behavior that came to light not because of an SEC enforcement action, on any number of possible grounds ranging from securities fraud to Regulation FD, but in a lawsuit by the Federal Trade Commission. Seems that in those anonymous posts, Mackey bashed a competitor, Wild Oats, which he was going to acquire.

Two things are noteworthy about this:

1. The SEC's inaction.

and

2. The fact that no federal agency, including and most notably the SEC, has taken action against (speaking of horror shows) a far worse Internet-addicted CEO, Patrick Byrne of Overstock.com, whose prolific message board posts, in my view, are far worse than anything Mackey did.


Like Mackey, Byrne posts under a pseudonym -- "Hannibal" -- on stock message boards. As a rule, Byrne does not give his full name, or identify himself as chief executive of Overstock.com, chairman of its board of directors, and, just as importantly, as the single largest holder of Overstock shares.

Yet, as I have documented time and again in this blog, has repeatedly used Internet message boards to smear his critics -- spreading lies about people in the media (myself included) and making nutty accusations such as that the Motley Fool website and some of its analysts are "bent" and corrupted.

He has done so not as some anonymous "basher" but as a message board Big Kahuna -- if, that is, you are among the select few who are aware of the fact that the nutty-sounding, paranoid crackpot posting on various message boards is actually the nutty-sounding paranoid crackpot who runs Overstock.com.

The media, perhaps inured to Byrne's chronic wackiness, has missed this significant point. Andrew Leonard in Salon, in a column entitled "Whole Foods CEO John Mackey's wacky Web rants," said as follows:

One assumes that the CEO of a publicly traded company would not be dumb enough to leak insider information on a stock discussion board, or make unmerited forward-looking statements in an effort to pump up Whole Foods stock. But who knows? It's sure hard to imagine any Whole Foods corporate public relations person being anything but horrified at the news that the CEO is bashing competitors and predicting stock prices under a pseudonym out in the wild Internet.

Guess again, Andrew. Here's one example of Byrne's naked, manipulative efforts to hype Overstock shares -- and the value of his holdings -- on Internet message boards. I've written about this before, but I think a re-run is in order.

On March 12, 2006, Byrne put a tantalizing little kicker at the bottom of a post on the limited-readership, subscription only Motley Fool message board:

PPS Big story breaking next 24 hours. Stay tuned.

I repeat, this is a limited-readership, subscription-only message board, concerning a stock with a wafer-thin float.

It also needs to be taken into consideration that this was done by a CEO who takes message boards very seriously, and who has contended that "paid bashers" are involved in the famous Sith Lord conspiracy.

He really did this. No foolin'.

Here's a screen shot of the relevant portion of the post:



Here's a link to this historic post, which you can access if you are a paid member of the Motley Fool website.

I repeat: you can access this only if you are a paid member of the Motley Fool website. (I'm repeating myself, and putting the relevant passages in boldface, because I sometimes think that the SEC has either eyesight or reading comprehension problems.)

Note that this CEO and largest shareholder of a public company is not identifying himself as CEO and largest shareholder of a public company. I repeat..... OK, I made my point.

It so happens there was some activity within the "next 24 hours" -- an idiotically bullish article by investor Arnie Alsin.

The Alsin article caused the stock to explode. The shares, which traded at 22.85 on March 10, climbed 12% to 25.55 on March 13, and another 25% to 28.50 on March 14l, on massive (for Overstock) volume of more than 2 million shares each day. Nice! Until you consider that Alsin was dead wrong. The shares have since skittered down to 19 and have traded at a lot lower than that. Note the link in the comment to this article by the proprietor of the O-Smear blog.

Confronted with this blast from the past in April on the Investor Village Overstock message board, (perhaps inspired by this Motley Fool article by Seth Jayson) Byrne tap danced and pirouetted -- and came forth with the following cock-and-bull story:


"Odd that you don't quote from that one"? You might find it even odder that Byrne did not "quote from that one."

Or at least it would be odd -- if that post actually exists. As best as I can tell, it does not. In the three months since I originally posted on this subject, it hasn't emerged. No loyal member of the Byrne Fan Club has brought it to my attention.

So I think it is fair to assume that Byrne was lying in a public forum. Say, doesn't the SEC have a word for that?

Seth Jayson of the Motley Fool (Byrne's bloviation venue in the Spring of 2006, until critics there bruised his fragile ego and he sulked away), observed as follows:

Where, I wonder, is this face- (or neck-) saving "disclosure," as to what Patrick was talking about. I haven't seen a single clarification from Hannibal100 in any of the posts made under that user name on this board subsequent to the original "big news" post -- and I just read every single one of them

Further proof that the "clarification post" dwells only in Byrne's vivid imagination can be found in a June 2006 post on another Motley Fool board from a Byrne supporter. One user had pointed to the "big news" comment, and the Byrne defender responded, "Nonsense. I forwarded your post to Dr. Byrne. He replied that the big news he was referring had not happened yet. "

I've reprinted the past few paragraphs from my April 23 blog post on Byrne's deceptive conduct. What's even more amazing is that the SEC is aware of this, and is of course aware of similar if less troublesome sliminess by John Mackey, and does nothing.

The famously passive board of directors of Overstock.com has also been made aware, including its "independent" board members, who now included a noted class action lawyer, Joseph Tabacco.

I wonder about Mr. Tabacco. Is he in the chicken coop to guard the birds, or to leave the door open for the fox?

© 2007 Gary Weiss. All rights reserved.



-----------

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 Confronts His Reg. FD Demons

Overstock CEO Patrick "Sith Lord" Byrne is a man of many demons, most of them imaginary, but one seems to have finally gotten the best of him -- Regulation FD.

In Internet posts over the weekend, it became clear that Byrne was being pushed, dragged, manhandled and otherwise forced into admitting that -- much as he revelled in ignoring it -- yes, there is a Reg. FD, and yes, he must make some gesture at obeying it, ancestral wealth and real or perceived political influence notwithstanding.

His weekend posts also contained -- unintentionally, as usual -- some interesting tidbits about the ongoing SEC investigation into this train wreck of a company, as well as official word that "Omuse," a lame Wikipedia wanna-be that was created to provide a cover story for in-house stalker Judd Bagley, is an absolute flop.

This rich harvest of (unintentional, as usual) self-revelation emerged in a post by Byrne on his favorite venting venue, the Investor Village Overstock message board. Seems he is not posting there anymore. Maybe.

As usual, he failed to disclose his full name and corporate affiliation and thus, for the umpteenth time, spat in the eye of Regulation FD. As I've described in the past, to Byrne Reg. FD is more of a joke than a requirement that he must obey. This rule requires that companies provide information to the investment community in a fair and even-handed manner -- not in whispered conversations or, say, posts to small numbers of crackpots on limited readership message boards.

After first acknowledging that there are indeed Reg FD issues with his posting corporate information on message boards, Byrne blurted that "the Omuse blog is still not very workable."

That's pretty amazing when you consider that this Wiki wanna-be has been up and running since February -- five months -- and had been the subject of Bagley's tireless efforts for six months before that. So here we have Byrne, in a desperate attempt to salvage this failing enterprise, announcing that he has made Omuse a collection point -- a kind of septic tank -- for his ravings and smears.

Byrne inaugurated his new policy of turning Overstock.com into a literal chamber pot by posting in toto (copyright be damned!) a recent blog item by fraud-fighter Sam Antar, and calling him "Crazy Sam."

No other wiki project--and there are many--has been reduced to attracting readers by posting personal attacks on the CEO's critics, using schoolyard epithets. You really have to search long and hard in the underside of Corporate America, starting with CEOs confined to prison, to find a corporate executive or a company quite this slimy.

Responding to speculation that he has (more or less) stopped posting on IV because of pressure from the Overstock board of directors, Byrne blurted out another goody:

. . . no one has brought the least pressure on me about my posting here (well, other than by a certain polite and proper government official, who politely and properly asked me why I post on message boards: I politely noted that the first amendment applies to me, too). [emphasis added]

It's reasonable to surmise that the "polite and proper government official" quoted above is an SEC investigator or worse. It's significant, I think, that this "official" was talking to Byrne directly and not his lawyers.

Byrne was asked to clarify the point on the Investor Village board but, in keeping with his policy of ignoring discomfiting questions, he did not do so.

(Note also Byrne's whining that Yahoo and the Motley Fool are infested with "bad guys" and "shills for powerful interests" -- Byrne-speak for "people who think I suck as a CEO.")

Sam Antar has a post today describing in detail the chain of events, and how it does suggest that finally the Overstock board has woken up.

As I observed previously, external pressure also probably explains Bagley's absence from Investor Village, and the sudden disappearance of menacing comments, including a threat directed at me, from Overstock.com's antisocialmedia.net corporate smear site.

Of course, I suppose you can believe Byrne's story that he is taking leave of IV because his precious jewels of baloney "scroll off the screen." But he can't use that cock-and-bull story to explain the fact that he has stopped using a pseudonym on his own website. That's an action he obviously would not take unless forced to do so.

In recent days, Byrne has retroactively changed his screen name on his "Take 5 With Patrick Byrne" message board from "Hannibal" to "patrickbyrne." This is how it appeared in May:



And here it is today:


Byrne likewise abandoned his Hannibal user name on Omuse, replacing it with "patrickbyrne." Apparently the wiki software doesn't allow replacing one user name with another.

The rest of the planet, of course, is aware of the Reg. FD problems presented by a CEO posting obsessively on message board, particularly under pseudonyms. At real companies with real boards of directors, posting on message boards is such a serious flouting of Reg. FD that it is a firing offense (as the CEO of a company called Medifast has learned the hard way).

Obviously Byrne is not going to be fired, as any ordinary CEO would be who acts as Byrne does, by his lapdog, sham board of directors. Still, maybe one day somebody will give him the good word about other elementary concepts every CEO should know, such as "making money," or "not hiring people to stalk your critics." Stuff like that.

It will be interesting to see if this lame backfilling will be enough to placate the SEC and if he has enough juice from his campaign contributees to call off the hounds. It will take a gutsy SEC to withstand such pressure, so don't get your hopes up.

Elsewhere on the Overstock front, Gradient Analytics has filed an appeal with the California Supreme Court against Overstock's junk lawsuit.

UPDATE: A reader comments:

Reg FD is only half the problem for Byrne and the BOD as it relates to Byrnes/Bagley's internet message board & blogging.

Take the example of the clearly derogatory put-down "Crazy Sam" - does this comply with Overstock.com, Inc.'s corporate policy on Code of Conduct and Ethics? The short answer is no - it is reasonable to conclude the CEO has once again violated Company Policy. This is a Sarbanes-Oxley compliance problem for the BOD. For the BOD to ignore this translates into tacit approval, or waiver, of Corporate Policy requiring a pesky 8-K filing as Sam Antar has pointed out.

And that, as I have remarked before, is 300lbs of steaming dog poop on the Board table.

To ever so briefly put myself in Bryne's ego-ravaged shoes, it must be enormously frustrating to be barred from matching tit for tat all those who have made disparaging remarks about Bryne, his lieutenants, and his Company. However, Corporate Policy demands that he take the high road, and as the highest officer of the Firm, he has a special obligation to do so. Obviously, he either doesn't agree or doesn't care, either way that's another BOD problem.

It is possible to convey his disagreement with Sam Antar and all other critics (including myself) without diving head first into the cesspool.

One more point if I may - Byrnes semi-departure from message board posting is clearly the result of a change forced on him by presumably the BOD. Therefore, his explanation of why-fores is false, or at best, intentionally misleading, and that appears to me to be yet another Reg FD problem.

As Herb Greenberg would say - "the beat goes on".

The code of ethics referred to above is not, of course, available on the Overstock website -- even Byrne is not capable of such a monumental hypocrisy. However, it can be found on Sam Antar's blog, here.

© 2007 Gary Weiss. All rights reserved.



-----------

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.

Overstock.com to Regulation FD: Drop Dead

(Updated 6/6/07 with quote from Patrick Byrne on Reg. FD)

Something new and wondrous always seems to emerge over the weekends in the always fascinating Overstock.com slo-mo train wreck. So it was this weekend.

Seems that "Omuse," the worthless Wikipedia wanna-be that was created to provide a cover story for its nauseating stalker in residence, newly re-titled Director of Communications Judd Bagley, is finally emerging from months of "beta testing" and will be officially inaugurated within the next two weeks.

How did I become aware of this material nonpublic information?

Simple, my dear Watson. It was officially announced not in a press release or some other legitimate vehicle of corporate disclosure, but was the subject of an anonymous posting by the hard-working Director of Communications in Wikipedia Review, a limited-readership message board dedicated to attacking Wikipedia. Word then crept out to the Investor Village message board.

Here's the Wikipedia Review post. Scroll down for the entry at 10:31 p.m. June 3.

This unsigned post is signed only "WordBomb," which is one of the anonymous handles that Bagley uses when vandalizing Wikipedia and threatening Wikipedia administrators. See this earlier post and others tagged "Wikipedia," and the thorough dissection of Bagley's activities on Wikipedia on O-Smear.



Posting this significant information on Wikipedia Review is revolting even by Bagley standards because it flies in the face of the rules against selective disclosure of material nonpublic information in Regulation FD.

As Seth Jayson of the Motley Fool points out, Overstock CEO Patrick Byrne himself acknowledged the Reg. FD hazards of posting on message boards in a Motley Fool post in October 2005:

1) You can safely assume that every security lawyer I know is wringing his hands and saying, "Holy Toledo, Byrne, you cannot engage with people on a public message board. It'll be Exhibit A in a lawsuit against you!" But as a smart fellow once told me, lawyers say that about everything.

2) That said, there is a Reg FD issue with me being here. That is, if I disclose things that are material, then because this is not open to the whole public, the SEC would come kick my butt. And they would be right to do so. [emphasis added]

I think it's fairly clear that the official inauguration of Omuse is material information, given the fact that Omuse is one of the five tabs that can be seen from the Overstock.com main page, right up there with Cars, Auctions, Travel and Shopping. (The fact that Omuse is a joke that can't possibly add a nickel of revenues is beside the point.)

It also seems particularly malodorous because Wikipedia Review is dedicated to undermining Wikipedia, against which Omuse is laughably claiming to compete. Indeed, Wikipedia Review hates Wikipedia so much that it doesn't mind, apparently, that Bagley posted spyware-infested messages to grab IP addresses from Wikipedia Review readers.

But hey, they don't call him Sleazey McSleaze for nothing.

Omuse has been widely ridiculed as a flop from the outset. It has been such an abysmal failure that Bagley has taken to spamming Usenet newsgroups to push Omuse -- and, when not ignored, getting a hostile reaction. See this link and this one. Kudos to Seth Jayson at the Motley Fool for first noticing (subscription required).

In contrast to the hype surrounding its launch, it has aroused almost zero interest, as can be seen by examining a list of new pages, and the fact that most pages (such as this one) are advertising spams by Overstock vendors. A link to recent changes, which highlighted the lack of activity on Omuse, was deleted by Bagley in February.

Gee, I don't see why it is such a failure. Wouldn't you be thrilled to give your credit card information to Judd Bagley for the privilege of adding content to someone else's website?

As I pointed out previously, Overstock.com had previously given the finger to Regulation FD by announcing this hot new Wikipedia wanna-be on the Investor Village message board.

When you've finished gagging over this sliminess -- and if your appetite for Overstock.com sleaze is unsated -- be sure to read two illuminating posts in Sam Antar's blog (here and here).

The first focuses on Patrick Byrne's lying in a message board post that he never hired a public investigator (turns out he did, for $50,000, though it turned out to be a crooked P.I.).

The second hones in on a crude death threat against me by a piece of muck posting on Bagley's antisocialmedia.net corporate smear site. The post is signed "alpineanalytics" and I'm persuaded that is this indeed from someone affiliated with New York entities named "Alpine Analytics" (not to be confused with the Colorado-based management training firm at this website).

This same moron has pumped Overstock on message boards, and purports to manage money for "clients." Makes me wonder: would you give your money to people who post a death threat on a website, and are dumb enough to sign it?

UPDATE: A faithful reader brings to my attention that Overstock.com no longer posts links to the nutty "Sanitycheck" stock market conspiracy theory website, run by a former used medical equipment salesman named Phil Saunders ("Bob O'Brien"). A link to "sanitycheck" used to be found on every Overstock product page. A diligent search found a grand total of one link, as compared to thousands previously.

Removal of the links won't do sanitycheck's dwindling readership any good. Like all nutso sites, it initially benefited from a kind of ghoulish curiosity, but has dwindled over the past year, according to Alexa.

Below is what every product page on the Overstock site used contain until recently:



The "market reform" link took one to a site devoted not to market reform, but to loony conspiracy theories and personal attacks on critics of Byrne -- a function now replaced by Bagley and Overstock.com's in-house smear site, antisocialmedia.

It's interesting to speculate why the links were removed. It's even more interesting to speculate how the nature of the support sanitycheck received from Overstock and Byrne. This is something the SEC needs to explore in its investigation of the company and its CEO.

© 2007 Gary Weiss. All rights reserved.

-----------

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.

The Grotesque Overstock.com Story Gets Grotesquer

News emerged today that the California Court of Appeals knocked down Gradient Analytics's effort to toss out Overstock.com's junk lawsuit. No surprise here. Gradient is appealing. No surprise. Overstock will be coming out with a (no doubt suitably juvenile) press release soon. No surprise.

But here's the latest twist from a company that always manages to sink to new lows:

I know that Overstock has an upcoming press release coming down the pike because I read about it on a limited-circulation message board, in an anonymous post.

Here's the post:




This is unsigned, but I know from previous posts that the author of this post is none other than the glassy-eyed individual at the top of this item: Overstock.com's nauseating Director of Communications and resident stalker, Judd Bagley.

Reading atrocities like this makes me wonder: Does the SEC ever plan to do anything about Overstock's constant nose-thumbing at Regulation FD?

The "report abuse" link at the bottom right corner of the post links to the crackerjack management team of Investor Village. Given Overstock's track record, it should take one instead directly to the SEC's Division of Enforcement.

UPDATE: Sure enough, the reigning clown of corporate America issued a press release filled with all kinds of "oh my goodness" shock value. Byrne says he "celebrates" the court ruling, much as he had "celebrated" the SEC subpoena of his company -- the one that came one week before the subpoena of him that he failed to disclose for a year.

Funny how Byrne "celebrates" opportunities for his serial lies, inept performance and misconduct to be subjected to the third degree by hostile attorneys and by the SEC. I haven't seen this much raw, blustering defiance of SEC scrutiny since the days of Bob Brennan of First Jersey Securities.

Herb Greenberg's take on the latest tidings can be found here. Herb notes that the case centers around a character named Dimetrios Anifantis:

Yes, that's the same Dimetrios Anifantis whose declaration -- "under the penalty of perjury" -- inolved an outright disregard for the truth when it came to testimony about yours truly.

That's right -- they've tried to drag the press into this for daring to raise red flags over the company's precarious prospects. My early writeups included this, which harkens back to the origination of Overstock's fight with Gradient (then Cambelback Research), and this. And if you haven't read my write-ups on Anifantis' antics previously, you can read them here and here and here. If his recollection of the fact and his feeble efforts and inuendo are as bad about everybody else in his line of fire, you have to wonder how credible Anifantis really is as a witness. Could that be one reason the SEC, with its subpoena power, recentlly dropped its case against Gradient?

Let's not forget how Anifantis's Senate testimony was scripted by Overstock.com, in one of the many creepy episodes in this corporate train wreck.

Thanks to the indulgence of the California courts, this nutty, dangerous, junk lawsuit is being allowed to proceed. But much as I regret the legal bills it is inflicting on the defendants, I look forward to watching this legal circus, and the resultant discovery proceedings, as they progress.

© 2007 Gary Weiss. All rights reserved.

-----------

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.