3.03.2006

OVERSTOCK.COM / Patrick Byrne

So, I guess I’ve been saving up for a little while here, so here goes. I heard yesterday more information about the dude at Overstock.com, Patrick Byrne, CEO. Last spring/summer we held the quarterly earnings report conference call and went on a 60 tirade that included references to, among other things, a “Dark Sith Lord”, a “Vast wide-spread conspiracy”, his sexual orientation, experiences with cocaine, and lots of other stupid drivel. His comments relate to what he calls a conspiracy to hold the price of his company’s shares to low levels, through a stock trading technique called “shorting”. In particular, he is concerned about more aggressive technique called “naked shorting”. When you “short” a stock, you are betting on (and benefiting from) a downward trend in a company’s stock price. “Shorters” must have money in their trading account to be allowed to short stocks – most of the time. “Naked Shorting” is when you DON’T have the money to cover that short bet, which Mr. Byrne believes has led traders to bribe columnists and reporters to publish negative stories about the company in order to ensure a downward trend, and cover their "nakedness". That’s where the “Sith Lord” comes in. Byrne has accused columnists and reporters of accepting bribes from this “Lord” to report negatively and give negative guidance regarding Overstock’s price trends.

Oddly, the SEC and other agencies are actually entertaining his accusations, and have launched an investigation. Of course, this gives rise to Byrne’s courage, and he is ever more vocal about the whole thing. A year ago, his company was doing great, great stock price, it was basically a Wall Street darling company, and everybody was loving them. Then Byrne opened his mouth, and everything he touched started turning to Poo-Poo. Now, as if this state needed the image of containing even more QUACKS and Weirdo’s than it already does (can you say Orrin Hatch??? – more on him later), this guy has to chime in and make himself look like an IDIOT.

But wait a minute, a friend of mine sent me a link yesterday (
http://www.gary-weiss.com) to a new book being published, claiming that ENRON and friends was nothing in the grand scale of wall street scandals. This guy claims that naked shorting (at a corpoprate level - like, say, with Schwab) is out of control, and the technique is responsible for putting multiple companies OUT OF BUSINESS. With publications and other articles out there like this, along with an SEC investigation, there’s no telling now where this will lead. A columnist at MarketWatch.com has been implicated as possibly the “Sith Lord” himself, colluding with many other people. This will be fun to watch. Note that shorting, and even naked shorting isn't necessarily illegal, but the thought is that if it's a business practice of large brokerage house companies, it has te potential to entice principles toward soliciting negative press in order to maintain that short postion until it can be covered, or rewarded. Interestingly, Byrne’s father, the former CEO of Geico, (and apparently the sole reason for Warren Buffet buying that company), is also the Chairman of the Board for Overstock, and he is reportedly telling his odd child to sit down and run his company.

A year or so ago, a new dude was hired to totally overhaul the IT/tracking systems at Overstock. Byrne even talked him up with very high praise at one of his earnings calls. Three months later, there was a SNAFU that made it so the company could not upload new products, or track shipments and all kinds of crap. Then, they guy was just gone, he just disappeared. Sounds like Mr. Byrne needs to spend a little more time dealing with the issues inside his own four walls. Or, does he?

http://www.theregister.co.uk/2005/12/03/overstock_issues/

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