Thursday, January 14, 2010

Annals of Public Relations

The ultimate objective of all corporate p.r. strategies is to avoid this

Today's chapter: Five thousand words beginning with this psycho rant...

that can be summed up in one word: Guilty.

Evidently former Fortune and New York Post reporter Roddy Boyd has an imminent article in The Big Money, hearkening back to's ill-fated venture into the diamond business.

Judging from the questions that prompted this tantrum, the article will show that engaged in some activities that may be construed as criminal in nature, including tax evasion.

I assume CEO Patrick Byrne's hysterical response (the language! oh my) in his astroturf blog was drafted without consultation with his attorneys.

Unfortunately for him, filing an 8-K isn't going to get him out of this particular hot water.

Here's Roddy's email to Byrne:

From: Roddy Boyd []
Sent: Wednesday, January 13, 2010 7:04 AM
To: Patrick Byrne


Roddy Boyd here. I am writing a story for Slate’s I have set up this email account for this query and will no longer use it after 4:30 pm EST tonight. I will phrase the questions as bluntly as possible because I am not seeking to engage in an E-mail exchange. Should you need to reach out to the story’s editor, Please approach Jim Ledbetter. I believe his email address is xxxxxx. Please have your response in by 4:30 pm EST.

Your response will be linked to in its entirety, as well as referenced within the body of the story–I imagine it would look something like, “Patrick Byrne said, ‘xyz…..’” (To see Byrne’s full response, click here.)

The story deals with Overstock’s state of affairs in the fall of 2005 and winter of 2006. Specifically, It references the problems you had with factors such as CIT because of Overstock’s losses and its percieved weak operating position. The governing theme of the piece is that financial investigative reporting on fully operational companies is imprecise (unlike say doing a post-mortem on Lehman or Enron.) In other words, the concerns of OSTK critics about liquidity and the build-your-own-jewelry initiative appear correct, but that they (likely) could never have guessed precisely why.

An Email quote, from 11/14/05, from David Chidester to you, Jonathan Johnson and Jason Lindsey says, “Unfortunately what we feared has begun. Some factors and banks have stopped insuring our payables.”

This clearly had been a problem of some duration for OSTK, since on 9/22/05, five weeks after your suit was filed, you stated in an email to your colleagues, “I just sat with CIT. They confirmed that at one time we were reasonably good (not great), and have turned to @#$% in the last six months.” You added: “For years, I have been hearing from accounting that we pay our vendors super-promptly.”

The story also references emails between Rich Paongo and Chidester on January 20, 2006 which looked at the problems three of Overstock’s factors and lenders had with the company: “Not meeting projections, no profits, low cash, and slow payments .” On February 28, 2006, Joanne Dalebout, E-mailed you and your colleagues, “All [vendors] are saying that with Overstock in the papers a lot and the lawsuit they don’t think we will be in business and that we are too much of a risk? Also having problems with CIT not approving small orders.”

Why did OSTK not reference the troubles it was having with its key credit providers in any of its public communications?

As you will recall, one of the concerns that OSTK critics had was the company’s cash-flow and operational soundness. For a retailer, this would clearly appear to meet the threshold of materiality. Do you disagree?

And would you elaborate on this decision?

The story will also mention “Operation heist and freeze” with your “Lubbavitcher friends” from

–Why did you not disclose, per Jonathan Johnson’s report to the OSTK board on 7/13/05, that the diamond VIE was structured as it was to avoid “Nexus in the State of New York for sales tax purposes.”

–Please elaborate on Overstock’s decision to avoid paying sales tax and to not disclose the identities of Moshe Krasnanski and Meyer Gniwisch.

Thank you,

Roddy Boyd
There's a follow-up:
Forgive the additional query, but it is germane.

The big diamond block, the trade you staked with Moshe and Meyer for about $7.5mm, appears to have originated from one Lev Leviev, a rather interesting man.

Leviev, outside of his NYC and West-Bank real estate operations, is also one of the more active miner and marketers of Angolan diamonds, an area whose extraction methods and principles are quite controversial.

Were those diamonds sourced from Angola? If so, could you elaborate on any debate you had with respect to doing this sort of business?

thank you

Roddy Boyd

Here's an article in New York magazine on Byrne's chum Lev Leviev. Note the stuff about Angola. I assume the other characters in the story are equally colorful, which I trust explains why Byrne was foaming at the mouth.

I guess this explains why Big Money editor Ledbetter was a target of Byrne's pretexting scheme. I had always wondered about that.

Looks like Roddy has quite a story. Thanks to Wacky Patty, P.R. genius, we have a sneak preview.

UPDATE: William Wolfrum has an amusing "review" of "The Patrick Byrne & Show":

Emotional, paranoid, afraid and angry simultaneously at all times, Byrne is to corporate drama what Meryl Streep is to Hollywood drama. The set-up for the latest episode is apparently an upcoming article by former Fortune and New York Post reporter Roddy Boyd.
The following morning, Byrne apparently sobered up and rewrote his hysterical headline:

Note the emphasis on "ethics." Apparently Byrne believes that Boyd breached some kind of ethical precept by, supposedly, using stuff leaked from depositions under court seal in one of his recent junk lawsuits.

Aside from the Olympian hypocrisy of Byrne lecturing even Charles Manson on ethics, I'm left scratching my head. Byrne had always welcomed discovery. So why is anything under court seal? If he has nothing to hide, he should demand that all discovery be open to the public and press.

Apparently he does have something to hide. Something to do with the New York State sales tax, and the days when he was a would-be diamond baron. Back in 2005, Byrne said he had gotten the "steal of a lifetime" in diamonds and was going to blow Blue Nile out of the water. Like all of Byrne's other big ideas, this one went bust, Ralph Kramden style.

Blogger Jeff Matthews observed at the time: ". . . even assuming has—thanks to its 'skunk works'—figured out how to convert $7 million of diamonds into a profitable business, it would be worth understanding how exactly one goes about getting a 'steal' on $7 million worth of diamonds."

Stay tuned.

© 2010 Gary Weiss. All rights reserved.

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