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conspiracy theories, were such a major embarrassment that they made the front page of the New York Times when they were withdrawn by SEC chairman Chris Cox.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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Where Are the Condolences for Overstock.com Shareholders?

Overstock shares since filing of the junk lawsuit

The clown prince of Corporate America, Overstock.com's wack-a-doo CEO Patrick Byrne, issued a gloating press release today on the liquidation of Copper River, a hedge fund (formerly known as Rocker Partners) against which he has filed a junk lawsuit.

That's to be expected from this odious and small man, known mainly for his inept management of a company that is a mockery of corporate governance. His antics are so nutty that the company was forced to disclose in an SEC filing that he is destroying the company's already-slim reputation with his paranoid ravings.

You have to wonder who will offer condolences for Overstock shareholders. When he filed his junk lawsuit against Rocker, the company's shares were trading in the forties. They have never returned to those levels, and now they are struggling to stay in the double digits.

© 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.

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.



-----------

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.