Friday, August 10, 2007

Stop the Presses! Overstock CEO Patrick Byrne Tells the Truth

Today we have a real "man bites dog" story: Overstock CEO Patrick Byrne, whose wack-a-doo public statements rarely have any relationship to reality, has finally spoken the truth. Not the whole truth, by any means, but a reasonably close approximation.

In a posting on his personal message board today, devoted mainly to a knucklehead rant on the market, Byrne acknowledged that he is the target of an SEC investigation -- not a good citizen giving information to the agency on "miscreants," as he has said in the past. He also said that the probe concerns his (cough cough) "irregular" actions.

Byrne said, "Everything I have done has always been legal and ethical, but I do recognize that it has been irregular and, coloring outside the lines as far as I have, I do not begrudge the federal attention I ahve received."

I guess "irregular" is Byrne-speak for stuff like hiring a full-time cyberstalker, not disclosing an SEC subpoena for a year, saying that the company was in an OK cash position and then raising money through selling stock, setting up an astroturf website to attack his enemies, and a bunch of other sliminess that has been chronicled in the media.

Or maybe there's something "irregular" in Overstock's accounting, a focus of the investigation according to the subpoenas. That's an issue fraud-fighter Sam Antar has doggedly pursued, in pointed questions such as this recent query.

Here is the exact quote: "Through these efforts the SEC was not only 0 help, they actually helped those who I hoped to expose before a systemic meltdown became impossible to prevent. I pushed hard on the SEC but drew no response other than becoming the target of a federal investigation. " [emphasis added]

Seems that the SEC is is just like everyone else who has ever criticized or antagonized even thought negative thoughts about Patrick Byrne. They're just like Senator Shelby of Alabama. They're just like the Utah state legislature. They're just like every financial writer who has not kissed his behind. They're corrupt! The reason he is a target of an SEC investigation, he said, is that "[SEC] bosses, the brass at the SEC, have been corrupted in one way or another."

Oh well. He is Byrne, after all. Remember that this is the same man who, exactly two years ago, said in a conference call that the financial system was targeted by a "Sith Lord." Some people, such as CNBC's Ron Insana, actually took him seriously.

What makes his fessing up about the investigation so interesting is how much he has ducked, weaved, evaded and outright lied about the probe, and the SEC subpoena, in the past.

As I pointed out when the news of the SEC subpoena of Byrne surfaced in May, Byrne went to extreme lengths to convey to his shareholders that he was not the target of a damn thing, but that the SEC investigation was targeting his critics. Judging from the shareholder reaction on the Investor Village message board, his line of bull was swallowed whole.

In a post on the Investor Village Overstock message board, Byrne said, referring to the subpoena served on him:

First, after a year of criticizing me for my decision to issue a press release celebrating my receipt of a subpoena from the SEC, the shills are now trying to make a case that I should have sent out a second press release when I received another addressed to me as a person, though it was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all. As though there is a world of difference between a subpoena addressed to our corporate lawyer asking for our CEO’s materials, and one addressed to me at our corporate address: I hate to disappoint, but that distinction is such a fine one it did not occur to me it was worthy of a second press release. The funny part is how it still has not dawnede [sic] on the miscreants that a fair bit of the material being requested by the SEC concerns THEM, not me or Overstock. [emphasis added]
I think a fair reading of the above is that he is not the target of an SEC investigation.

He then returned to the topic in a later post and said:

. . . as I recall (it has been a year), that second subpoena [on Byrne personally] was quite short, had two questions that related to areas covered by the first (I do not remember what, precisely), a third that asked if I had a 10b5 plan ("No"), and then asked for everything I had written, gathered, learned and said about the miscreants: naked shorting, collusive and manipulative practices among hedge funds, analysts, bent journalists, etc. So, given that I had just issued a press release saying, "I may be the first CEO in history to celebrate receiving an SEC subpoena," I can honestly say that I do not think it even occured to me that another press release was due: if it had, I probably would have put out one that said, "Overstock Celebrates Subpoena Indicating The SEC May Finally Be Looking Into Claims About Corruption in Our Capital Markets." [emphasis added]
This one, particularly the last sentence, makes it really clear (to anyone who believes what he says, and takes his "word" over Overstock's SEC filings) that Patrick Byrne was not the target of an SEC investigation.

Last but not least, we have this:

Here is the punch-line: as a matter of law I must tread carefully here, but I can say that the heart of the investigation is not, I would suggest, Overstock-centric, but rather, concerns itself with a strange set of relationships among ….. Well, let me just say that the irony here is just delicious. [emphasis added for the benefit of nearsighted SEC investigators]
. . . which makes it really really really clear to anyone reading it (who takes his "word" yada yada) that Patrick Byrne and Overstock are not the targets of an SEC investigation.

But he was, as is Overstock. Its SEC filings say so, and now -- amazingly! -- he does too.

This is, of course, just the tip of an iceberg of distortions, evasions, misleading statements and outright lies -- or what Byrne would call "irregular" and "coloring the lines as far as he has." You know -- cheating at school, crossing the street against the light, and lying to your shareholders. Ethical and lawful, but irregular.

Speaking of "lawful," is it permitted by Reg FD and the federal securities laws for a CEO to say stuff that is not only false and misleading, but also contradicted by his own SEC filings?

Perhaps someday there will be another man-bites-dog story to report: For the first time in his vile life, Patrick Byrne is held accountable for his actions, and all of daddy's money can't help him.

You have to admit, the irony of that would be delicious.

UPDATE: Sam Antar has a solid analysis, and Herb Greenberg ties in Novastar and the subprime mess.

© 2007 Gary Weiss. All rights reserved.

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