A Hagstrom For Regulators

I believe I've used the expression "road map for regulators" more than once to describe ex-scamster Sam Antar's detailed analysis of Overstock.com's sleazy accounting practices.

So here's a different metaphor: The detailed post out today is very much in the tradition of the venerable map-maker, Hagstrom. Except that the only motorists who need follow it are investigators for the SEC.

The title says it all: "Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures." You can read it here.

I really don't have much to say beyond "read it." If, that is, you are interested in how a widely publicized company can manipulate its financial statements, right in plain view of an army of feckless brokerage house analysts and the world media.

Byrne has lately been posting on the Overstock website a warmed-over attack on former Business Week reporter Tim Mullaney, who posed a series of tough questions to Byrne two years ago. Byrne has been practically begging the media to pick up on his smears. Anything to divert attention from his shady accounting. I guess he feels that in glorying in his past victories -- he browbeat Business Week into not writing about his dreary financial results -- he can relive them.

The irony is that Mullaney's questions were right on the mark, and Byrne's replies were slippery and deceptive. Byrne also said in the exchange with Mullaney that "I think 'EBITDA' is the stupidest thing I ever heard emanate from Wall Street (no small feat)." Yet he recently trumpeted -- and inflated -- the company's EBITDA numbers.

Byrne's view of his face-off with Mullaney as a public relations triumph borders on the delusional. It established his reputation in the media as a bully and as a CEO with something to hide.

I doubt that the SEC, which is investigating Overstock and Byrne, is focusing massive resources on his "campaign of menace" (as Joe Nocera put it) against critics. Their case largely centers on accounting. Silencing critics is, I believe, largely secondary, sort of icing on the cake.

Now they have no excuses for further dilly-dallying, as the accounting issues that are evident in public statements ( Lord knows what is buried in their books and computer files) has now been laid out for them.

They've got a great road map. Time to step on the gas.

© 2007 Gary Weiss. All rights reserved.

Overstock's Creepy Strategy

Susan Antilla of Bloomberg has a great column on Overstock.com's smear site, antisocialmedia.net, and its intimidation campaign against critics. The title says it all: "Overstock Bellows, Blames With Creepy Strategy."

Before the article appeared, a clearly terrified Patrick Byrne tried to intimidate Antilla by posting her questions online, along with his own long-winded, evasive responses. He also used an ancient, bush league PR trick by demanding that his quotes be used in full or not at all. Antilla picked the "not at all" option: "I would happily map out Byrne's exact words, but he wouldn't agree to an interview unless I only quoted full sentences from his e-mails. Brevity isn't his style."

Byrne employed the same creepy-crawly tactics, with more apparent success, when a Business Week reporter named Tim Mullaney was planning a story on Overstock last year.

Byrne posted Mullaney's questions, and his slippery answers, on Overstock's de facto investor relations portal, the sanitycheck.com crackpot anti-naked-shorting website. (Though keep in mind that Bryne's account, as usual, is laced with fiction -- see this response from Mullaney.) His goon Phil Saunders, the ex-used medical equipment peddler and ace stock-picker who runs Sanitycheck, then obediently commenced a smear campaign against Mullaney.

The Business Week article never ran. While the reason may have been unrelated to Byrne's tactics, they had the appearance of working and, I am sure, emboldened Byrne.

They also deprived readers of an article that would have charted Overstock's impending financial disaster, judging from Mullaney's perceptive questions.

This time, all Byrne did was to make himself look like a fool. But that won't stop Byrne, the nauseating Bagley, and the handful of tinfoil hats who carry water for these night crawlers. I am sure that the smear campaign against Susan Antilla and Bloomberg will now commence, as this corporate train wreck digs itself deeper into the muck.

© 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.

The 'Naked Shorting' Cult Smear Campaign

In Wall Street Versus America I lament the sorry state of financial journalism. I think the media are far too soft on the Street and particularly the bad guys -- the ones with their hands in your pocket, whether they are fee-happy, secretive hedge funds or the ubiquitous small-cap fraudsters. Unfortunately the bad guys have a way of fighting back against the few tough financial reporters. And I mean fighting dirty.

We're seeing that in the smear tactics employed by the anti-naked-shorting conspiracy theorists. Even though their "stock counterfeiting" yarns are widely dismissed as paranoid rubbish -- obviously aimed at diverting regulators from real stock fraud -- their gutter-level attacks on the media and other enemies (notably the Depository Trust and Clearing Corp.) have been effective. These guys have clout.

Here's what I mean: At a forum on the subject last November, a top NASD official named Cam Funkhouser described how he went with a team to the Berlin Stock Exchange in response to "hysteria" over supposed naked-shorting there. Their findings: it wasn't happening. Imagine that. They went overseas not to investigate, say, offshore boiler rooms -- or some other actual problem that afflicts investors -- but to chase down a lot of "hysteria."

Regulators do a crummy enough job fighting stock fraud as it is. They shouldn't be chasing their tails over the Wall Street version of the flat-earth theory. Unfortunately, they are vulnerable to political and "public"pressure -- in this case, concerted pressure from a small handful of dedicated, well-financed fanatics.

One leading target of the naked shorting loons is Tim Mullaney of Business Week. Tim hasn't written about naked shorting. His crime is that he planned to do a piece on Overstock Inc., whose CEO, Patrick Byrne, is a godlike figure among these crazies because he has adopted their cause. Some of Tim's questions upset Byrne, and the smear machinery swung into motion, with the obvious intent of getting BW to lay off.

Enter "Bob O'Brien," the pseudonym (according to the NY Post) of a creep named Phil Saunders who runs anti-naked shorting cult websites. Cringing behind a phony name to stave off process servers, "O'Brien" has repeatedly smeared Tim on the Internet, using a tactic straight out of Joe McCarthy. He learned that Tim once worked at the Baltimore Sun, so he twisted that into a smear to give the impression that Tim left the Sun under a cloud. "Ask Tim why he left Baltimore," O'Brien has asked repeatedly in Internet postings.

I did. Tim's response: He left the Sun to take a university position at a 40% raise.

Time for regulators to turn their backs on these crazies, and stop wasting their limited resources running off to places like Berlin to investigate a scandal that doesn't exist. If anything in that realm deserves to be investigated, it's the naked shorting conspiracy cult. Who are its backers? Why is it so enamored of certain stocks that it pushes on various "independent" websites and message boards? These questions deserve answers.

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Wall Street Versus America: The Rampant Greed and Dishonesty That Imperil Your Investments will be published by Penguin USA on April 6.

Click here for its Amazon.com listing and here for my web site.

HOW TO FIGHT MEDIA BIAS--NOT: It's actually fairly easy to fight media bias. You sit down, put a piece of paper in the old Royal, and type out a lucid and intelligent letter of complaint. Now, there's an excellent chance that won't accomplish anything, but at least you got it out of your system. You can always throw the Royal through the window if the answer is unsatisfactory-- as it probably will be -- or if you are ignored.

There are other good things you can do about media bias that were listed recently in a blog called Publicity Hound that I just saw linked today by the SABEW blog. The author of the blog, Joan Stewart, offers eight suggestions. I think seven of them are perfectly fine, but I have a problem with No. 7:

If you’re lucky enough to have a tape-recording or a written transcript of an interview you did with the media, you can fight back by posting it on your website, like Overstock.com President Patrick Byrne did following an interview with BusinessWeek e-commerce editor Timothy Mullaney—before the story was published on BusinessWeek’s magazine or on its website. You can read more about it here.

With all due respect to Ms. Stewart, whose general concern about media bias I tend to share, I think this not a very good idea.

Sure, if you've been misquoted, then I would say yes, posting a transcript is totally understandable. However, Byrne was not upset with a biased article. He was concerned with what he saw as a biased reporter, which is an entirely different ball of wax. (Not there was any actual evidence of "bias," I must hasten to add.)

The problem with this approach is that it is going to be construed as an attempt to intimidate the media. Not that Byrne would ever stoop to doing such a thing. Perish the thought! But it is going to be viewed that way anyway.

In Wall Street Versus America I point out how inadequate so much media coverage of the Street has tended to be. Reporters are just not motivated. What Byrne has done is to find a way to motivate reporters! And it will work, believe you me. Your coverage won't be favorable, but there will be plenty of it.