 |
| Byrne is the kindest, warmest, bravest human being..... |
This post has been updated to reflect developments subsequent to initial publication.
It's been a long time since the financial press has cast a skeptical eye on Overstock.com and its CEO, Patrick Byrne, Yet there are multiple reasons to do so. Five thousand to be exact. So I've dusted off my blog for an update on my favorite fraudulent stock.
As in all soap operas, its continuing story line is not new: Byrne wants the stock to go up. The stock has a history of manipulation, mainly through
cooking the books, resulting in
multiple restatements. But it takes an expert to sniff out accounting irregularities. All you need to detect the latest Overstock scam is a working pair of eyes and an Internet connection.
What's new is that Overstock shares are the subject of an old-fashioned pump-and-dump.
That's where it gets crazy. In promoting the glories of Overstock, Byrne has the help of a former adversary named Marc Cohodes. That person, in turn, has the help of a disgraced ex-social worker named Fraser Perring.
It took nearly six years for Byrne's hatchet man Judd Bagley to be turned into mush by copping a plea
to eight felony forgery counts. Perring enters the Overstock fray pre-discredited, having been
expelled from social work in Britain for "deliberate, persistent and dishonest conduct to hide mistakes." Just the kind of background you need to be taken seriously on Wall Street, I have to admit.
As for those 5,000 reasons: for weeks Cohodes has been beating his chest about Overstock, ridiculing skeptics, offering off-the-wall price projections, and even offering
side bets on the share price. Yet on December 22, he donated 5,000 Overstock shares to the Southern Investigative Reporting Foundation—an act that contradicts everything he has said about the company and its stock since October 10,
when he appeared at a Grant's Interest Rate Observer conference in New York and predicted that Overstock's stock price was going "way the fuck up."
The donation also effectively guaranteed that Roddy Boyd, one of the few journalists who had ever written about Overstock in any depth, would not be able to write about the company's latest exploits. That's because Roddy
doesn't write about companies his donors are involved in. Which is a good idea. It also means that a stock promoter like Cohodes can give money to Roddy and thereby, in effect, buy his non-coverage.
Let's bring newcomers up to date.
The tawdry background
 |
| Patrick Byrne aide Judd Bagley in a Utah lockup |
Before Cohodes entered the picture, Overstock CEO Patrick Byrne intimidated the media, analysts and critics through his p.r. director Judd Bagley, who created for Byrne a prototypical "fake news" site, Deep Capture. It published nutty conspiracy theories that defamed a host of people. One of them was a Canadian businessman named Aly Nazerali, who was a subject of wild, unsubstantiated accusations on the site.
That was a mistake. Nazerali lives in Canada, the Black Hole of Calcutta for libel defendants.
 |
| Byrne's Waterloo |
In 2016, Nazerali won a defamation suit and was awarded sizable damages by Canadian standards,
including punitive damages and, far more importantly from a libel plaintiff's standpoint,
a lengthy, scathing judgment. The court found that Byrne and his subordinates displayed a "reckless indifference for the truth," that their motive was to "inflict damage" on Nazerali, and cited "the overt animosity, even hatred of the plaintiff, expressed by Mr. Byrne."
The court concluded, in throwing the book at Byrne, that "it is clear on the evidence that their intention was to conduct a vendetta in which the truth about Mr. Nazerali himself was of no consequence."
Not long before the libel verdict, Deep Capture founder Bagley copped a plea to
eight counts of forging prescriptions and was revealed in court documents to be a raging addict
—little details omitted from the puff pieces that Byrne generated.
Deep Capture was now completely discredited. But Byrne kept it alive to use when journalists threatened to write negative articles, most recently to attack
M.L. Nestel of the Daily Beast., who was preparing a
2016 article that was the last critical piece to appear on Overstock.
Byrne has privately sought to make nice with some Deep Capture targets, Cohodes in particular. He
removed every reference to Cohodes, cutting out his name from the website in Stalinesque fashion after he acquired Overstock shares and began pumping the stock. But Byrne has kept the site alive and its staff on retainer, never retracting any of its thousands of lies. He has told multiple people in recent months that he remains proud of the website.
Byrne has proven that he is unrepentant and unchanged by deed as well as word, vigorously fighting the Nazerali suit. His lawyers pleaded Byrne's case before an appellate panel in Vancouver on January 15 and 16, 2018.
Byrne's credibility was flushed down the toilet with Deep Capture. Absence of credibility is a serious issue if you want to promise a bunch of stuff to make your share price to go up. That's where Marc Cohodes comes in.
Raymond Shaw, Call Your Office
The classic 1962 thriller
The Manchurian Candidate stars Laurence Harvey as Raymond Shaw, an Army sergeant who is captured in North Korea, brainwashed, and programmed by his captors to return to the U.S. and do the commies' bidding.
In this real-life
Manchurian Candidate tale, the Shaw character is Cohodes, a retired hedge fund manager turned chicken farmer. He and his partner David Rocker were sued by Overstock for libel in 2005. The suit was settled in December 2009, and Cohodes (Rocker had retired) issued
a defiant statement on behalf of his hedge fund, Copper River Partners.
Cohodes's view of Overstock and Patrick Byrne had not changed by November 2011, when he
said in deposition testimony that Byrne was "crazy" and "not fit to run a public company."
Nor had it changed by December 2013. Cohodes
sent an email to his then-pal Sam Antar,
a fraud expert he'd been leaning on for free forensic accounting advice, saying about Byrne "all he does is lie." The email is below (click to enlarge).
The turning point in the Byrne-Cohodes relationship involves the demise of Copper River, which collapsed in the wake of the 2008 market crash. It was down 55%
in just two weeks during a time in which other shorts were as happy as pigs in clover, gaining 35% on the average in 2008.
Cohodes blames Goldman Sachs for crushing his old firm with margin calls he couldn't meet. But if you read the
press coverage carefully you'll find a significant fact buried in there—"Copper River’s funds at the firm [Lehman Brothers] were suddenly frozen." Journalist Roddy Boyd has
described what happened as "the fund’s devastatingly ill-considered swap with Lehman Bros. on several equity positions that blew up just as the brokerage collapsed."
 |
| Cohodes |
Ill-considered is right. The Nobel prize-winning economist Joseph Stiglitz has
observed that "people were talking about the failure of Lehman Brothers from the moment of the failure of Bear Stearns in March, or before." That's why hedgies who are familiar with the Copper River collapse don't buy his contention that Goldman was to blame. Cohodes couldn't meet Goldman Sachs' margin calls because of his avoidable Lehman problem.
Short-seller Jim Chanos explained Copper River's demise to me thusly:
They held their shorts and cash at Lehman International (I warned them not to), which was frozen when $LEH collapsed. They were short call options at Goldman, in financial stocks. When the short ban in financial stocks occurred, they got a margin call at $GS, that they couldn’t meet(cash trapped at $LEH). Voila...collapse.
"I like Marc," Chanos told me, "but would never give him a dime to manage."
Ironically, in 2008 Byrne sided
with Goldman Sachs, saying sarcastically on Deep Capture that "it's damn inconsiderate of Goldman Sachs to insist that Copper River have funds to back its play," But make no mistake: the attacks on Cohodes were mild compared to the attacks on family members and fabrications directed at myself and other Deep Capture targets.
Over the years his hatred of Goldman has drawn him close to Byrne. While I don't believe that Byrne has any genuine antagonism toward Goldman—it is, I think, just a pose that he displays for the press—he has sued Goldman as part of his naked shorting dog-and-pony show and that lawsuit has result in discovery that he has hyped to the hilt.
Turns out he was wasting his money. As I noted in a
2012 Barron's article, the suit revealed that if anyone was harmed by Goldman it was hedge funds, not supposed corporate victims like Overstock.
In June 2017, Byrne and Cohodes met and bonded, with Cohodes
tweeting a picture of the two men. He accumulated a sizable position in Overstock.They were now joined at the hip. Byrne didn't have to use post-hypnotic suggestion to turn Marc Cohodes into Raymond Shaw. All he had to do was appeal to his vanity.
That became evident when Cohodes appeared before the
Grant's conference on Oct. 10 and gave his "way the fuck up" presentation, claiming that Overstock was "ridiculously cheap" and slobbering over his new pal. Cohodes asked his audience, in effect, to pretend that Byrne was not the liar and con man that he had always been. Byrne, he said, had figured out a better way to engage in the stock loan business, based on the blockchain.
The crucial part of the presentation received little attention.
Cohodes candidly described how he was conned.
At about 6:25 in the YouTube link above, Cohodes recounts how Byrne called him and told him that Goldman never had actually borrowed the shares that he was shorting, and that "you were ripped off and they put you out of business because they didn't have the shares."
"It meant a lot to me," said Cohodes. After all, Byrne "didn't really need ever to do that."
 |
| Byrne pontificating on Tzero |
Oh yes he did. You would too, if you were an experienced flim-flam man like Byrne. He had figured out Cohodes' weakness, which was a desire to shift blame for the demise of Copper River.
The result was available for all to see in 2017, with Cohodes singing Byrne's praises and giving a Raymond Shaw performance that put Laurence Harvey to shame. It was brilliant from a stock promotion standpoint. How could Cohodes be wrong? Hell he used to hate Overstock! It's a theme I've seen repeated on social media time and again.
But it's really not strange at all. Shorts go "long" all the time. Contrary to the image sometimes presented in the media, short-sellers are not "scam busters" but opportunists, and they are happy to switch sides to make a buck. Strictly-business pairings of former adversaries are not unusual, as evidenced by the friendship of Steve Wynn and Donald Trump
after years of acrimony.
What is strange is not that a short went long, but the
Manchurian Candidate-style delusional conduct and the facts-be-damned embrace of a crooked CEO.
According to Jim Chanos:
I don’t understand why Marc has gotten involved with these crooks. I asked him about it at Grant’s and did not get a rational explanation. After he told me to “make peace with my enemies”, I told him I thought he was making a big mistake.
Chanos said that "I am not a 'forgive and embrace' person. I believe that most people don’t change-a fraudster almost always stays a fraudster."
Byrne treasured Cohodes's embrace so much that he devoted an entire slide in his
Third Quarter 2017 conference call to Cohodes's "way the fuck up" pumping at Grant's. See image below (click to enlarge).
 |
| Conference call slide on the Cohodes pump (emphasis added) |
The media, unfortunately, sometimes put a halo over shorts. It's not surprising, since they feed us good stories, flatter us on social media and want to be our pals. But they're not. To some, Cohodes included, we're tools. While short-selling is an important stock market practice, as I pointed out at length in my 2006 book
Wall Street Versus America, it is a mistake to conflate the practice with the practitioners. Some shorts
have gone to prison or been barred by FINRA. The conversion of one into a stock promoter is no biggie by comparison.
The pump
With Cohodes by his side, Byrne had a valuable ally as he repositioned the faltering e-tailer into a supposed future "stock lending" powerhouse aimed at addressing the imaginary naked shorting menace. Byrne, predictably, made claims that grew wilder and crazier with each presentation, as pointed out in a damning report to the Securities and Exchange Commission by an Overstock critic, an abridged version of which was
posted on Medium a week ago.
That report is must-reading because it performs a task that the financial press has neglected, which is to investigate Byrne's public statements concerning his hyped stock-loan venture.
The report, written by a thinly disguised Midwestern short-seller, asserts that Byrne's version of reality can be boiled down to three elements, and that each of them "is materially false." He calls the Byrne promotion "largely a fantastical fiction which overstates the business opportunity for tZERO by as much as 25,000 percent in order to mislead investors about tZERO’s true prospects."
What's amazing is not that the claims are fantastical but that anyone would believe a single thing that Byrne would say. Yet the pump of the stock hinges on believing Byrne.
Starting at Grant's and continuing with Twitter posts that sometimes border on the hysterical, Cohodes dismissed as irrelevant Byrne's background of serial lies, behaving as if they were a high school prank
circa 2005 or earlier, and not the acts of a CEO who celebrated his 55th birthday on Nov. 29.
Cohodes referred to Byrne in
syrupy, adulatory tweets as "Dr. Byrne" and
adopted Byrne's smear tactics as he pumped Overstock shares. He never referred to Byrne by the
Manchurian Candidate catchphrase "the kindest, warmest, bravest, most wonderful human being I've ever known in my life," but he has come close. Throughout the fall and winter of 2017, Cohodes prostrated himself before Byrne on Twitter, acclaiming him as a
visionary genius, a combination Einstein and the Lone Ranger.
Cohodes created not just his own version of reality but his own bizarro-world code of ethics. He regularly
ridicules skeptics for having no stock market position, no "skin in the game," claiming that only the opinions of people like himself—in other words, people with major financial conflicts of interest—are worth a damn. In the real world, such conflicts make one
less trustworthy.
Meanwhile he regularly generates tweets sucking up to the financial press, people ethically bound to not have "skin in the game," and some lap up his insincere flattery.
He also conflates disagreement with his view of Byrne as a stock-price forecast, and has claimed that the success of his pump proves him right—a hazardous assertion, considering that some of his short picks, notably MiMedx, have performed contrary to his expectations.
Cohodes's big mouth and openly moronic style don't do him very much good when he is sued, as
this court decision indicates. But they doubtless help drive up the share price by appealing to naive retail investors and small-fry traders in Overstock, with its volatility, thin float, and susceptibility to short squeezes.
What distinguishes the Cohodes pump from previous efforts to boost Overstock is that he gives share price projections—something Byrne and his surrogates have never done before. But it seems to work, and Cohodes is proud of his stock-promotion skills. He may have put it best in a tweet shortly after the New Year.
He certainly has been unrestrained and enthusiastic.
On December 10 he
tweeted "I have been Long $OSTK since the summer & its going much HIGHER . IMHO"
On Dec. 11 he was talking about the stock at
$150-$200 a share. The stock was trading at the time in the 50s. (Click on the images below to enlarge.)
On Dec. 13 he was talking
$200 to $400 a share.
On Dec. 15 he spoke of the stock hitting $400 if he was right—and he never publicly budged from the view that he was right as rain.
On Dec. 16 he
said Overstock was worth $200-$400 a share "depending upon TZ"—a reference to TZero, about which Cohodes has only had positive things to say.
On Dec. 17, Cohodes tweeted that he had
bought more shares in the preceding week.
On Dec. 19, a fairly typical day in the Cohodes pump, he:
His output of hype, invective,
threats, hysteria and bullshit did not slacken as Christmas approached.
On Dec. 21, after making a
creepy threat against Overstock skeptics, he said that the
"best thing that could happen" was being long Overstock.
On Dec. 22 he claimed the retail part of Overstock's business
was worth $100 a share. (On Dec. 13 he had put its value
as $60-$90. On Dec. 7
he said it was worth $60.)
On that same day he
ridiculed a critic's claim that Overstock shares were floating in a "bubble" made of "hot air."
Throughout, Cohodes never wavered from portraying himself as someone who wouldn't part with a share of Overstock unless it was ripped from his cold, dead hands.
In a Dec. 19 exchange, Cohodes gave not an inkling that he would ever
dream of parting with Overstock shares. "i have made 5X my money and they are just scratching the surface. i am not a trader,"
he said. The full exchange is below (click to enlarge).
In
a Dec. 18 tweet, Cohodes could not have been clearer that he would never, never,
never sell a single share:
To this day it's still only Davidson. So that means that he would absolutely, positively never ever part with a share of Overstock. Right?
Well......
The dump
On December 21, 2017, Roddy Boyd, CEO of the Southern Investigative Reporting Foundation, received a call from Marc Cohodes. He wanted to make a donation consisting of 5,000 shares of Overstock.com.
It was a welcome call. SIRF needed the money. Roddy had not taken any salary for the preceding month, and he had borrowed against his house. The donation was unsolicited.
After hurriedly consulting with his board of directors and his lawyer, Roddy accepted the gift. The shares were sold on the open market the following day as soon as they were acquired at a sale price of $65.32 a share, with proceeds coming to $326,600 minus fees and a commission of about $2,000, leaving a net of $324,400. Cohodes had already given SIRF $15,000, and the share donation brought the total given to SIRF to $339,693, more than twice SIRF's
expenditures in 2016, when it was running at a deficit.
Cohodes' previous $15,000 donation
was listed on SIRF's site as being from Cohodes personally, but Roddy tells me that "we received the initial donation of $15k and the subsequent shares donation in an entity called the Marc Cohodes Charitable Trust. I asked him if he'd prefer to use that name and he said just change the last word to 'fund.'" The entire $339,693 is currently
shown on the site as donated by The Marc Cohodes Charitable Fund.
Roddy tells me that his decision to take the shares was consistent with the expert advice he had gotten that he had "a duty (but not obligation) to seek out sources of support that don't conflict with the mission statement." Since opening SIRF, he said, "I've turned down at least $50k, probably more." At the time that he accepted the donation, he said, "we told Marc to leave us out of debates about things he's involved in."
SIRF, he said, "had a board discussion and we simply don't want to be connected to any debate about a public company's market value and its investors that we didn't start. That goes triply for this company."
(Board member Bethany McLean later sent me an email attributing the board's decision, at least in her case, to "expediency." The email is appended to the bottom of this post.)
You have to give credit to SIRF for publicly disclosing the contribution at all. It's not required by IRS regulations and SIRF's policy on donor disclosure exceeds the
standards on donor transparency set by the
Investigative News Network. However, it would have eventually been disclosed by the Cohodes "charitable fund," assuming it is an IRS-approved private foundation as its name implies. His ex-partner's family foundation's 2016 report, for example,
can be found on the Foundation Center's 990 Finder website; its contributions of over $5,000 are listed on the 26th page. Pretty much every private foundation's 990 is available on that and other websites.
I think that Roddy, prior to his involvement with Cohodes, was a good and honorable guy. He was very forthcoming in providing information to me on the Cohodes contribution, which had become common knowledge among people who follow Overstock.
I believe SIRF risks taking a reputational hit for accepting a large contribution of Overstock shares in the midst of a pump, and for allowing one controversial donor to dominate its donor list. In June, after publication of this blog item, Sam Antar
disclosed on Twitter that he learned of the share donation not long after it was made and strongly advised Roddy to disclose that it was a donation of Overstock shares. Roddy did not do so, and did not respond to Sam's
query as to why he didn't.
To me, a financial journalism nonprofit taking an actively promoted stock is akin to a cancer charity taking a donation of a tobacco stock. I think that would be so even if the donor was Mother Teresa and not someone who engages in
clownish stunts, attacks fellow journalists, celebrates conflicts of interest, and actively advocates and whitewashes a CEO who has a website that smears a number of financial journalists, including Roddy.
Cohodes' contribution to SIRF followed publication of a
flattering article on Cohodes, focusing on an alleged offer of "consulting" work by BOFI Federal Savings, which appeared in SIRF in June 2017 and accompanied
two other pieces on BOFI. The article does not say if Cohodes was short the stock, saying only that "he has aggressively started
criticizing the bank on Twitter." In fact, Cohodes disclosed he was short in an
April 29, 2017 tweet. The article contends that Cohodes was not a source for BOFI.
(After this article appeared I was advised that the Cohodes donation also presents a possible reputational risk for other donors, especially if they are in the financial services industry.)
The Cohodes donation may increase the chance of Roddy being dragged into Cohodes' legal battles, if issuers believe negative information was provided t
o him directly by Cohodes or by Cohodes cronies like Fraser Perring.
In January 2018, SIRF published an article on a Perring target, Wirecard, and Reuters reported that an investigation by German prosecutors into Wirecard trading was "extended" because of Roddy's piece. The SIRF article makes no reference to Perring, and although updated it doesn't mention the German probe, even though the Reuters article linked above mentions SIRF,
To be quite frank about it, I find it odd that of all the companies in the world to probe, he selects an obscure German company that just happens to be a target of Cohodes' good friend Fraser Perring. I found that coincidence even odder when I
read in April that Roddy
appeared on a panel at an offshore conference, and just by coincidence he shared that panel with Perring. See illustration above (click to enlarge).
As I'll be describing in greater detail below, Perring is a disgraced social worker who has actively pumped Overstock and attacked and threatened Overstock skeptics, working closely with his good friend, and SIRF contributor, Marc Cohodes. For a legitimate journalist to appear on a panel with someone like that is, at the very least, lousy judgment. But I guess it makes sense, when that someone is a close pal of the guy who just paid you three years salary.
Roddy not only helped legitimize Perring by appearing on a panel with him, but he performed the same favor for another participant in that panel, Chris Carey of Mark Cuban's
controversial trading outfit Sharesleuth. Apparently Roddy has changed his view of Sharesleuth. In December 2017 he
Tweeted to me that he'd "happily shut down" SIRF rather than turn it into another Sharesleuth. But now he
calls Carey his "role model." But that was the guy who executed Cuban's business model, which, at least at one time, was little more than a legal insider trading scheme.
Roddy was
subpoenaed by Fairfax Financial after writing negative stories on that outfit, and fighting such a battle, if it involves Cohodes or one of his associates like Perring, would be harder now since he has allowed this litigation-prone, garbage-mouthed short to become his largest donor.
Anyway, for the purposes of this blog what matters is not who got the stock but that the chief promoter of Overstock shares was getting rid of a sizable number of shares at the same time that he was pumping—and vowing not to take profits until there were eight sell-side analysts covering the company.
Was the stock put in the charitable fund by Cohodes or someone else? Like that guy in Utah he likes so much? It's interesting that three days before he called Roddy to offer the shares,
Cohodes met with Byrne and posed for a photograph.
Whatever the source, why donate Overstock shares and not something else, or just cash, if one feels that Overstock is going "way the fuck up"? Didn't he have a fiduciary duty to keep a stock with such potential in his charitable fund? I've asked Cohodes these questions, and am awaiting a response.
On January 3, 2018, just 12 days after he transferred the shares to SIRF, Cohodes talked about the stock hitting $300.
No,
make that $400.
I do agree with Cohodes on one of the points that he made above. The media is lazy when it comes to Overstock. One problem is the gentle treatment that its promoter Cohodes has received from the financial press.
Even a visit from the FBI, caused by an online death threat against a CEO, was spun favorably in a
Bloomberg article. A few hours later, another Bloomberg piece made the rather obvious point that
death threats are not a good idea. But the overall impression one gets is that Cohodes generates puff pieces no matter how outrageously he behaves.
After this item first appeared, Cohodes responded to my emailed request for comment by
mocking it on Twitter. Later he took out time out from his usual rants and misogyny—a female MiMedx exec has "very Greasy Hair," he
tweeted—to
feign delight at seeing his Overstock share dump publicized:
"Highlight of my day was being recognized for donating 5000 shares of $OSTK to @SIRF_Report @RodBoydILM runs a great organization that I am proud to support. Donating my $15 cost OSTK is Poetic Justice to the Haters. Get a life people, Shit is about to get Real."
Roddy responded to the foregoing by
tweeting "Thanks, I'm indeed grateful, as is the board of SIRF, for Marc's generosity."
Note the distortion in Cohodes' tweet.The fact that Cohodes had donated over $300,000 to SIRF was not news and was not "recognized" in this blog item. It was
disclosed on the SIRF website, and
discussed on Roddy's Twitter feed, weeks before. The fact that it was an Overstock share dump, however, was never disclosed as a share donation by either Cohodes or SIRF.
On Jan. 30, Roddy
tweeted "If someone else can build a better independent reporting non-profit when big foundations and high net worth people won't take your call, I invite them to." (The obvious rejoinder to which, I guess, would be that if you have to take a share donation in a pump-and-dump, which leaves you so conflicted so you can't report on the issuer as you did previously, then maybe your reporting project isn't "independent" after all.)
The entire Twitter conversation is worth a glance. It was hardly Roddy's moment of glory—he called another journalist a hedge fund's "fucking house transcriptionist"—and sometime later he apologized for it. Privately, in an email, so as not to rile Cohodes.
Cohodes claimed that he was donating the stock to take advantage of his pump. Note the tweet on the right (click to enlarge).
Not being a tax expert, I only noticed some months after this item initially appeared, thanks to
this tweet, that Cohodes was lying.
A taxpayer can only claim a deduction for appreciation in shares purchased
more than a year earlier, and he
said in December that he started acquiring his Overstock shares during the summer of 2017. Only the purchase price of the shares can be deducted for donations of stock held a shorter term.
What that says to me is that the economic aspects of his donation were secondary to compromising Roddy, by involving him in a pump and dump of Overstock shares.
Late in February SIRF posted its
Form 990 for 2017. It shows total donations of $590,310, but no number broken out for "noncash donations" on line 1g, page 9. (See illustration above; click to enlarge.) Also no Schedule M was filed to list noncash donations exceeding $25,000.
I raised the issue with Roddy in June on Twitter. He
sarcastically referred to the 990 omission as a "crucial issue" and said that he had taken it up with his accountant. He later non-sarcastically said that not breaking out a share donation, one as hot-button as this one, is
"not crucial, no" but needs to be corrected.
I think that failing to disclose that the contribution was made in shares on his 990, and declining to take Sam Antar's advice to disclose that Roddy's primary funding going forward would consist of proceeds from a pumped stock like Overstock, were serious errors. Making a joke about them on Twitter compounds the error. Yes, I think it is a crucial issue for a one-man nonprofit that engages in investigative financial journalism.
As respected fraud-fighter Tracey Coenen put it in a
tweet to Roddy: "This isn't like an ordinary donation of shares, and most people know it. There was an ulterior motive on the part of @AlderLaneeggs [Cohodes], and unfortunately @RodBoydILM [Roddy] got drawn into it. Ethical people can still make mistakes."
Thanks to the Overstock shares donated by Cohodes, SIRF reported a surplus of $381,000, and Roddy's salary issue (he was working without pay for a spell, as noted) vanished as well. He reported $142,000 in compensation for 2017, elevated by that share contribution, up from $89,250 in 2016. He boosted his 2018 pay to $180,000, which means that that Cohodes share contribution doubled his compensation., He is SIRF's sole employee.
On March 15, Overstock's 2017 earnings were released and they were horrid.That, combined with a series of SEC and regulatory probes and other bad news, including a rash of class action suits, has sent Overstock shares plummeting to as low as 50% below what they were when Cohodes donated the shares to SIRF, and 60% below their January highs.
As the pump unwinds, as all pumps eventually do, it's going to make that share donation look even worse for
everyone involved than it already does. (Postscript: Sure enough, Overstock shares tumbled a whopping 79% in 2018.)
I think it's interesting that Cohodes never addressed any of my questions—especially the one asking whether the shares he donated to SIRF were put in his "charitable fund" by someone other than Cohodes. He could have just said "no."
Instead he said nothing.
However, he did make a
price prediction of $200-$400 on Feb. 15, seven weeks after he dumped 5,000 shares for a fraction of that price.
Which again raises questions that won't go away. If he really felt that the stock was going up to as high as $400, why did he let it go when it was trading at "only" $64? Could it be that he didn't really believe that the stock was worth even $64? Or could it be that he didn't own the shares that wound up at SIRF?
As for Roddy's defensive, sometimes obscene, outraged reaction to the blowback from his taking an Overstock share donation, Upton Sinclair probably put it best: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
The disgraced social worker
On Twitter, where he has emerged as the Donald Trump of stock pimping, Cohodes is surrounded by an echo chamber. Anonymous sycophants provide a feedback loop as he tweets his often bizarre, juvenile and even paranoid posts, at one point
claiming that drones he saw over his chicken farm were sent there by one of his short targets. The sycophants chime in with expressions of concern on such occasions, and also are constantly telling Cohodes what a great guy he is, to the point that I wonder if they are relatives or even Cohodes himself.
They also form a kind of troll army, harassing people who disagree with him. One of the latter stands out from the rest by sheer nastiness and dishonesty. He goes by the Twitter handle of "AIMhonesty" which is ironic since his posts, which are distinguished by garbled syntax, are anything but honest as they concern Overstock, in which he has served as a loyal Cohodes wing man.
He's slippery. When this person claimed I was posting "lies" on Twitter, I demanded that he substantiate his claims and he
never responded.. See also
this tweet. And
this. And
this. His twitter feed has a
pinned tweet referring to his "debunking" a "report" that I "distributed," which is bullshit from beginning to end.
Who the hell is this prodigious, evasive liar? Well, for one thing, he is persistent. Sam Antar tells me that "AIMhonesty" sent him private messages via Twitter that began pleasantly last summer, but became abusive and incessant after he started challenging Cohodes on Overstock. When asked to identify himself, he refused. His PMs became threatening.
Here's one that he sent after he was told multiple times to identify himself or go away:
In early December he asked a series of incoherent "questions."
He concluded his bizarre "interrogation" with the following muck:
Cohodes prized his contributions, however, and in December met him "in parts unknown" and
was photographed "hanging" with him.
On Dec. 11, Cohodes
disclosed in a tweet just how tight he was with this "AIMhonesty." They were such great pals that he had
let him in on the Overstock pump.
Cohodes tweeted that he, analyst and blogger Jeff Matthews, and other persons were all "pros & people who I respect," and that "I told them all what I was doing in $OSTK" at a time when it was trading between $15 and $20.
Cohodes, with "AIMhonesty" as his loyal wing man and co-pumper, was eventually able to help Byrne drive up the share price to $87 by January 8. So that was awfully nice of him, you have to admit.
With so a serious financial stake in his pal Cohodes' Overstock pump, it's not surprising that "AIMhonesty" was such an enthusiastic shill. He was so enthusiastic that he sent Antar a creepy (though nonsensical) threat on Dec. 3, 2017.
You can imagine my surprise when this babbling fool "AIMhonesty"
was identified in the financial press as Fraser Perring, "CEO" of a "research firm" focusing on short-selling called Viceroy Research. Not a word was mentioned about his close relationship with Cohodes, that he partnered with him in pumping Overstock, or that he had been tweeting anonymously as "AIMhonesty,"
Nor that it was unprecedented that a "research firm" would be completely anonymous and therefore unaccountable.
There were other omissions in the coverage. For one thing, the article to which I linked above says that Perring had "stepped forward." But it didn't say that he actually was pushed forward. An online publication, Moneyweb,
had already identified him and was preparing an article exposing him. The Bloomberg piece, apparently planted by Cohodes, was clearly intended to preempt the more hostile Moneyweb article.
The story did not mention that attorneys for a company called MiMedx, which has sued Viceroy for libel, were seeking the identity of its principals.
A
follow-up Bloomberg article began as follows:
A year before unleashing a damning report that detailed accounting irregularities at Steinhoff International Holdings NV, one of its authors faced a reckoning of his own.
Minutes after Fraser Perring dropped off his 4-year-old daughter at school in December 2016, two men with Eastern European accents trapped him in his Audi. They threatened to harm his family unless he admitted writing extensive reports alleging wrongdoing at Wirecard AG. Frightened, and fueled with adrenaline, Perring lied. He said he had nothing to do with the reports.
“It devastated me, but it made me stronger,” Perring said.
The only words in the foregoing that are believable are these two: "Perring lied." Anyone familiar with organized crime would tell you that mobsters don't threaten in such situations. That's only done in Tarantino movies. And the story doesn't hold water at all. As indicated in the Moneyweb piece, Perring was identified by simply examining the metadata contained in one of his research reports. Any geek would have found that in five minutes. There was no need to send over hoods to force him to "admit" his identity.
That cock-and-bull story strained credulity to its outer limits, calling into question his credibility, as does his posting a
photo of his kids on Twitter even after claiming in multiple interviews that his life had been threatened.
The Bloomberg article, though deficient though it was, did provide compelling evidence that absolutely nothing Perring said was worthy of belief.
The article notes that he was
thrown out of social work in Great Britain by the Health Care and Professions Council. Perring did not appear at the hearing, either personally or through counsel, to defend himself.
An HCPC panel found that Perring
. . . was Child A’s allocated social worker during care proceedings. It was his responsibility to ensure he made contact with the child’s extended family and he had been directed by both the court and his manager to do this. He did not contact Child A’s extended family for over six months and instead recommended a closed adoption.
The Panel further heard that Fraser John Perring’s failure was exposed due to an enquiry from Child A’s guardian, which caused him to contact Child A’s aunt and uncle only a few days before the final hearing of the case. To cover his failings, he then created false entries in the case file to show he had phoned them three times and created a letter to them dated two months earlier.
Panel Chair Clare Alexander Yule commented:
In the Panel’s assessment, the established facts and misconduct are very serious involving deliberate, persistent and dishonest conduct to hide mistakes. Such serious dishonesty continues to cast a shadow over the registrant’s current fitness to practise. He has failed to accept responsibility for any of his failings and subsequent dishonest cover up.
“The potential consequences for Child A were very serious as there was a risk that he may have been adopted, thereby severing his family ties, denying him contact with the extended family.” (emphasis added)
If any reporter was curious about the significance of the foregoing, all he or she had to do was to examine the coverage in the local newspaper, the
Lincolnshire Echo, which covered this case of social worker sliminess on page 9 of its editions of February 20, 2014. It's available on the ProQuest database, which most news organs can access.
The
Echo describes the child in question as a "neglected boy," and goes on to say that Perring "had made just one phone call to the child's aunt and uncle a few days before the adoption hearing and, to cover his mistakes, he created false entries into the case file which attempted to show that he had phoned them on three other occasions. He also wrote a letter to the family on June 20, 2012, but put an April date on it, to make it look like it had been sent earlier in the year."
Following "an investigation into Mr Perring's telephone and other records, he resigned from his post," the newspaper reported.
Perring's defence to the foregoing was a Twitter storm in which he contended that he was the innocent victim of a conspiracy. (click to enlarge)
Perring has said on social media that a monetary
settlement paid to him to settle an employment suit is exculpatory, which shows how little he knows about litigation. People, companies and governments settle lawsuits all the time to avoid further headaches and legal fees. Copper River is one, paying $5 million to settle the case brought by Overstock to avoid the expense of further litigation.
As for Perring, the text of the
settlement makes clear that there was no admission of liability by the Lincolnshire County Council. And the settlement was in 2013, one year
before the British regulator kicked him out of social work.
In a
detailed description of the 2014 hearing, the HCPC made a direct reference to the earlier litigation. It indicates that, even though he didn't appear to defend himself, it took into consideration Perring's "suggestion that the Management had retrospectively found concerns with his practice once he had communicated his intention to bring legal proceedings." But it
still found against him and struck him off the rolls of social workers.
A Council spokesman sent me a statement saying that "we do not share the sentiments expressed by Mr Perring nor is there any evidence to support them." (Interestingly, the Bloomberg reporters who wrote about Perring's legal troubles never bothered to contact the Council, even though Perring makes lurid accusations against it.)
Perring's lawyer in the employment action wouldn't comment, saying he was bound by attorney-client confidentiality rules.
So we are left with an uncontradicted, unappealed, pretty damn disgusting finding of dishonest conduct, made by a British regulatory body concerning someone who is being toasted in the financial press as the epitome of honest, clean securities research. We are also left with the social-media smokescreen that Perring has thrown up about his past. Such as
this tweet from his "Viceroy" account after his troubled past was revealed. Note the non-responses to my questions.
Being thrust into the public eye means that Perring is probably going to be dragged into litigation. In one
recent tweet he addressed the possibility of being interrogated in a deposition.
Apparently Perring thinks that giving a deposition is like appearing on the
speakers' corner of Hyde Park, and not a tightly controlled proceeding in which the
deponent answers questions, not the people who are trying to get the information.
Note the "#sueme" hashtag. MiMedx has sued Viceroy and some hedge funds in federal court for libel, claiming false statements were made in Viceroy's research. On Jan. 12 a magistrate recommended that everyone
except Viceroy be dismissed as defendants, and permitted discovery to identify the identity Viceroy's principals. But the magistrate put tight restrictions on discovery, which turned out to be moot because of the Moneyweb reporters' good work.
So Perring will doubtless get his "#sueme" wish. Which means he is going to be have to hire lawyers and, if they can't get the suit dismissed, sit for that deposition he's looking forward to.
(After this post appeared, Perring got his wish. In March 2018, Perring and his two Viceroy associates, two young Australians, were named in a libel suit brought by MiMedx in Florida. At about the same time, Germany's securities regulator
disclosed that Viceroy violated its rules, and Munich prosecutors
launched an investigation.)
Thanks to Perring's big mouth, the other side has a big, fat line of inquiry it can pursue if and when he is deposed by either civil litigants or regulators. He
blurted out in a Bloomberg interview that "Viceroy only has one outside investor, a 'significant high-net-worth individual' based in the U.S. he didn’t name." That person's name, and any others backing Viceroy, and all sorts of other interesting stuff, will be extracted from Perring during that deposition, if the suit survives legal challenge.
Fending off a libel suit and overseas investigations is going to cost Perring and his associates big bucks.
Lawyers in complex civil litigation require retainers commonly reaching the six figures. He
tweeted on March 16 that he had just spent "half the day" with his lawyers (note the plural
lawyers). So he is already in hock for thousands of dollars in legal fees. The lawyer bills are going to keep mounting even if he gets the libel suit dismissed at an early stage.
Which raises some interesting questions: Who's paying Perring's lawyer bills in the libel case? Whose paying the freight for Perring and his three cohorts in the German regulatory and criminal probes?
There may be more legal troubles down the road for Perring. Viceroy has produced a series of very interesting research reports, including one on a firm called
Capitec Bank. Capitec denies the allegations, which sent its stock nosediving, and has called for an investigation.
Just to be clear, I have no opinion on any of the companies they've written about. They can be as lousy as billed for all I know. What interests me is whether Viceroy is legit, given what we know about Perring. Short-selling is unpopular enough without charlatans getting a high profile.
I guess it's possible that Perring and the two young Australians who work with him are investment prodigies, and write up all this great work on their own, and aren't fronts for others, such as hedgies who don't want the limelight.
But given Perring's bizarre behavior and dissembling, his absence of financial background, the fact that he can't seem to articulate a cogent PM or Tweet, and his record of dishonesty, I have my doubts. Big doubts. Big, big doubts.
Comical isn't it? Overstock has always been a barrel of laughs, unless you're the last sucker holding the bag. In the past, the SEC has shrugged at Byrne's complicated accounting games. It may feel differently about the way he's been fibbing about his stock-lending operation. And then there's all that other merriment I've described above.
So I'm going to sign off with the immortal words of Porky Pig: That's all, folks. For now.
UPDATE: Shortly after I wrote this blog item I was involved in the spat with Boyd described above, which arose again on June 1, and Bethany McLean weighed in. The following email, which was sent to me when this blog first came out, provides some insight into the thinking behind acceptance of the Overstock share donation and all the baggage that comes with it. (Note that the blog has been revised and updated since this note was sent.)
Roddy has repeatedly thanked his board, which consists of Chris Roush and William Cohan in addition to McLean, for its "
support and guidance." I think a better description is "inattentiveness." Also "lack of accountability." Sam Antar was
blocked by McLean after he posed three polite questions, which were later directed at Roddy and ignored.
Roddy has had to re-file his 2017 Form 990
twice because of obvious errors that he and his board failed to catch. The first,
in February, was minor. His second, described earlier, was serious. His latest filing corrects that error but makes another one. It says he got $328,750 from Cohodes while he had
previously disclosed it was $339,693. So I guess he'll have to file a
fourth 990.
Not that it matters. What bothers me, but not his board or Roddy, is that a financial journalism nonprofit got a big fat wad of cash from "suckers."
In an August 2018 podcast, Cohodes
made clear what will happen to Roddy if he dares to cross him by ever again writing about Overstock in a way that Cohodes doesn't like.
Since Cohodes has contended that people "owe him" for favors that he has never actually done, it's fair to assume that the bailout described in this blog counts as a favor. And that if Roddy crosses him on Overstock or any of the other stocks he has pumped or bashed on Twitter, he will do what he can to "destroy" him, no doubt by targeting him financially through his donors.
There's an old saying: "He who sups with the devil should have a long spoon." Roddy hasn't just supped with the devil. He's leaped into bed with him.
© 2018 Gary Weiss. All rights reserved.
Labels: Bethany McLean, Capitec Bank, Deep Capture, Fraser Perring, Judd Bagley, Marc Cohodes, MiMedx, Overstock.com, Patrick Byrne, Roddy Boyd, SIRF, Viceroy Research
