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More from Dr. Patrick Byrne: The Byrne Chronicles

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bartermania   Sunday, 04/24/05 04:27:37 PM
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More from Dr. Patrick Byrne: The Byrne Chronicles

The following posts are from the Overstock.com Auction section, where Dr. Byrne is known to occasionally post and communicate with any and all comers. They represent his views on Naked Shorting/Failing To Deliver, the media, and a variety of other topics. Team O is Team Overstock. O'Brien is "Bob O'Brien", one of the founders of NCANS, who uses a pseudonym due to safety concerns. The rest of the cast of characters ares self explanatory.
Posted: Tue Feb 15, 2005 5:10 pm Subject: naked shorting and overstock
Dear Team,

THIS IS NOT MEANT TO GET YOU TO BUY OUR STOCK: I just want you to have a context when you read what certain “journalists” say about me.

There is a way to bet against a firm, called “shorting.” It is legal and ethical. Short-sellers usually are concentrated, betting against just a handful of companies, and it is worth their effort to keep close contact with reporters to feed them negative information. But portfolio managers who buy (“go long”) stocks usually take positions in 200 or so stocks, so it is not worth their time to call reporters to talk about how good one holding is. Thus, shorts have better press connections than longs.

There is nothing wrong or illegal about shorting. However, as the short community draws its full share of Wall Street scum, folks push the edge:

First, there is a variant of short-selling called “naked shorting.” This way of manipulating a stock has been illegal for 71 years. I won’t go into detail about how it works, but to learn more, go to www.ncans.net .

Second, short-sellers bribe people. There was recently a case where an FBI agent was caught tipping off short-sellers before they (the Feds) raided a company: the shorts could trade on that information and make guaranteed profits.

Third, there are a few “journalists” who act as though they are on the short-sellers payroll. The theory is that a hedge fund naked shorts a stock, then calls on these journalist to write hatchet jobs (stories which often turn out, in retrospect, to have had no substance whatsoever). The stock goes down, and the hedge fund makes money. Is there collusion? We might see that when a hedge fund shorts, the same three or four financial journalists step up and bash whatever he shorts. Are the reporters paid to do this? Since the short-sellers typically have offshore hedge funds, it would certainly be possible to pay off reporters under the table, outside the US, and none would be the wiser. So there is no way of knowing. But generally anyone who speaks out about it is accused (by those same journalists) of being a conspiracy theorist.

Much of this was discussed on our January 28 earnings call by a guy named, “Bob O’Brian.” If you want to learn more, I suggest you go here and turn to Page 16 or so, when O’Brian comes on the call.

The regulators have ignored this for years, though it may have become rampant. At last, in January, they finally started a list, called the “SEC Reg SHO Threshold list", which gives the names of stocks being naked shorted. As of January 28, Overstock is on that list, and continues to be.

So it is no longer a “whacko conspiracy theory.” I am not the guy saying someone is illegally manipulating our stock, the SEC Reg SHO list is saying someone is illegally manipulating our stock, and has been since at least January 28.



Posted: Tue Feb 15, 2005 5:33 pm Subject: naked shorting and overstock

Dear Colleagues,

I am a value investor: that means that I believe that a company has an “intrinsic value” that may be quite different than what the market says on any given day. Thus, I truly do not care about our stock price. In fact, I can safely say that there is not a CEO in America who cares less about his stock price than I do. In fact, since I have never sold a share, and have only bought, I have benefited when the price came down, because it let me buy more shares.
So I have nothing personal against these shorts, and am reasonably friendly and kind to a couple who visit.

But the shorts hate me.

Why? A year ago our stock was in the $18 - $20 range, and now it is about $55. That whole time the shorts have been short about 4 million shares (making us one of the most shorted stocks on Wall Street). Thus, the shorts have collectively lost 4 million X ($55 - $20) = $140 million in the last year betting against us. No wonder they don’t like me. But they spend a lot of time saying that I am a bad guy, a liar, a crook, etc. I think it has gotten hard for them, since I write the most open and thorough letters imaginable to the investing public: when things go badly I admit it, I take the blame, I say what went wrong. Still, they say that is all proof that I am a double-super crook, because I take the time to create this façade of being so open. (Um, I am not sure how I am ever supposed to disprove that.)


Posted: Tue Feb 15, 2005 5:35 pm Subject: naked shorting and overstock

Dear Colleagues,

For a year or so I heard rumors that there was a particular Wall Street guy, David Rocker, who had been shorting our company. That is OK: more power to him. Again, I am fine with shorts, and quite friendly to some, even though they are betting against us (and even say some nasty things about me). But Mr. Rocker seems quite a bit different than other shorts I have met: personally aggressive, somewhat nasty, he showed up at a conference I was in and tried to bicker with me until I had to ignore him. I was on Kudlow & Cramer, and on the air Jim Cramer read a public posting by David Rocker that attacked our company. I was pretty light-hearted in response, and simply suggested Rocker should keep betting against us if he felt that way. I don’t know if he did, but if he did he must have lost a ton of money doing so, as our stock kept rising since then!

In any case, Mr. Rocker seems not to have much of a sense of humor about it. He called in to our October conference call, and we really got into it. I brought up in passing that Rocker has at times been the largest owner in Jim Cramer’s company, TheStreet.com. Jim called in to say that the fact that Rocker’s hedge fund owns a large stake in Jim’s financial newsletter should not be understood to mean that the Rocker’s fund tells Jim what to print in his newsletter to move stocks in ways that help Rocker make money. Jim also says that he only met Rocker once, grocery shopping. He said all this on our October call, when he seemed irate at a discussion Rocker and I were having publicly.

Let me emphasize that I am not accusing Mr. Rocker of being the one who is illegally manipulating our stock. I have no idea who is, though the fact that we are on the Reg SHO list tells me SOMEONE is illegally manipulating our stock. Rocker is simply on record as being short us, for quite some time.



Posted: Tue Feb 15, 2005 8:19 pm Subject: analysts and the financial press

Dear TeamO,

OK, so enter here the “journalists” and “analysts.” There are a small number who seem to go out and trash companies David Rocker is short. The main ones are:

- Donn Vickrey – Donn works for Camelback Securities in Phoenix (which recently changed its name to “Gradient Analytics”). Camelback works like this: hedge funds pay them some amount of money (I have heard $25,000 to $70,000 and, recently, $40,000), in return for which they get the right to pick up the phone once or twice a year and order a hatchet job on some company. Camelback calls this, “forensic accounting.”

- Herb Greenberg. Herb works for CBSMarketwatch, but he used to work at TheStreet.com, where no doubt he (like Mr. Cramer) never met the hedge fund (David Rocker’s) that, through onshore and offshore devices, owned the largest stake in their financial company (whose main product, a financial newsletter, Rocker did NOT use his plurality stake to influence). I called him a “lapdog” on our last conference call.

Financial Press – Barron’s and the Wall Street Journal are generally thought to be sympathetic to and in cahoots with Wall Street shorts. In particular, the Section C editor of the Wall Street Journal, along with Elizabeth MacDonald of Forbes, habitually do hatchet jobs on companies he goes short.

How do I know this? Someone close (remarkably close!) to a guy mentioned above described it all to me, right down to the number of times per week phone calls are made amongst Donn, Herb, and David Rocker. They now barely conceal their collaboration at this point, and frequently refer to each other as sources. So for example, Camelback published lots of nasty things about me, and I ignored them. But when they wrote something that was personally unfair and unkind about Gordon Macklin, a 78 year-old board member and lifelong mentor, and THEN contacted me for further help on another piece, I replied in an email that for the way he had written about Macklin I thought he should he should be beaten, f-----ed, and driven from the land (a phrase which I thought was particularly colorful: I have always admired those who can swear creatively). Camelback sent the email on to Herb, who based a column on it, on how erratic I am, etc. With a slight bow to intellectually honesty, he included my quote in full, so the reader could understand the context (that Camelback had personally disrespected an elderly man). The Section C editor of the Wall Street Journal, on the other hand, doctored the quote before printing it. (These yokels all bleated as if I were supposed to be bothered by this, but I never figured out why.)

I am by no means suggesting that the remarkable coincidence of these journalists’ attacks with Rocker’s short positions means that they are on the take: there are many possible explanations for the coincidence (including, for example, that they could all be right, I COULD be a crook, and they all figured it out at the same time).



Posted: Tue Feb 15, 2005 8:47 pm Subject: David Rocker - expert on the short game. Your advice sought.
Dear TeamO,


Here is another interesting thing to know: David Rocker was on our July conference call (I know because he complained publicly that I did not take his question). And he was on our October conference call (because I took his questions and got into a debate with him). Given that he had made himself such a presence, on our last conference call O'Brien called in and asked Rocker a question that ran like this:

“...I know this probably sounds a lot like the X-Files; but I want to mention a number [that]…. kind of stopped me in my tracks the first time I heard it. It is an amazing number to me. That number is 25%. 25% of the U.S. companies on the New York Stock Exchange threshold list are Rocker Partner shorts. That is four out of the 16 U.S. companies on that list and there are three more on the NASDAQ list, I just looked that it a couple minutes ago…. Anyway I just found that 25 percent number fascinating, and of course I am not saying that there is anything, any impropriety to it. But I just find it fascinating that out of a constellation of thousands and thousands of U.S. companies, that 16 are on the New York Stock Exchange REG SHO threshold list and Rocker shorts 25 percent of those…. I was hoping that he would call in, and I would love to hear his spin and his take on what I just described, because he is an acknowledged expert on shorting. Maybe he could disabuse me of these notions. But again, if he does call in, please ask him, ‘Why are 25 percent of the U.S. companies on the threshold list are short along with the three on the NASDAQ?’”

I invited Rocker on, because he is a clear expert on shorting, and given the conversation he might have added something, but he did not call in.



Posted: Tue Feb 15, 2005 9:06 pm Subject: summary thus far
Dear TeamO:


To summarize: up to this point I have explained shorting (legal), naked shorting (illegal), the scum of the Wall Street short community, the widely suspected complicity of journalists with that community, and the recently promulgated SEC Reg SHO designed to publicize areas where illegal manipulation is occurring (though it is otherwise toothless, in my opinion), and our inclusion on that list since January 27.

I have also mentioned that we have had a member of the short community, David Rocker, gunning for us for about a year now; that he owns (through onshore and offshore funds) a significant stake of a financial newsletter called TheStreet.com, at which works Jim Cramer and, in the past, Herb Greenberg; that TheStreet.com has written plenty attacking our company, and that David Rocker wrote something attacking us that Cramer read on air (but note that Cramer says he does not know Rocker personally, having only bumped into him once at a grocery store). And I have noted that there are a small number of journalists and analysts who are close to Rocker (Herb Greenberg, formerly of TheStreet.com and now of CBSMarketwatch, Donn Vickrey of Camelback, Elizabeth MacDonald of Forbes), who have written an amazing number of pieces that attack companies which Rocker is short. (By the way, that number truly is amazing, and Herb in particular seems to have developed a kind of fixation on me that is a little creepy: he wrote one entire piece simply about the speed with which I answered various emails and calls, and now has taken to updating tiny little details in his stories about me so that they keep floating back onto the newswires). And I have noted that O'Brien asked a question of Rocker, "Why are so many companies that are on the Reg SHO list (i.e., companies whose stocks are being illegally manipulated), also on the list of companies that Rocker has publicly acknowledged being short?" And that Rocker, though he has been on at least our previous two conference calls, did not accept my invitation to come through on the call and address O'Brien’s question.

And lastly, I have noted that there ARE explanations for all of this. One explanation is that maybe I am an incredible crook and a swindler, and this circle of folks who parrot each other continuously about what a crook I am, could be right. That is one explanation. There are, however, other explanations, I suppose, and I leave them to the careful reader to work out.



Posted: Tue Feb 15, 2005 9:21 pm Subject: Cry 'Havoc!' And let slip the dogs of war.
Dear TeamO:


Now the story gets really interesting.

O'Brien called me for the first time shortly after the October conference call. He talked about all of this, but it sounded wacky. He did, however, make three predictions:

1) Since I had gotten crosswise with Rocker in that call, I would hear from his minions in the press: Herb Greenberg and Donn Vickrey, of course, but also Barron’s, WSJ, and Elizabeth MacDonald. Well, Herb, Donn, Barron’s, and WSJ all regularly wrote crappy things about me, so that was no grand prediction, but in 5 years of business I had never heard from Ms. MacDonald. Sure enough, two business days later she called me.

2) That I would see Overstock get listed on overseas exchanges (this is a technique naked shorts use to disguise what they are doing: see ncans.net for details). It sounded wild, but by January 28 we were listed on 5 German exchanges and one Australian one (none at our request).

3) That we would see ourselves on the Reg SHO list in January (we did on January 28th, for the first time).

So all his predictions (these and some others I cannot say here) came true. We spoke shortly before the January 28th call, and then many times thereafter, and I quickly decided it was the right thing to do to go after this Wall Street scum. It puts me in an odd position: as a value investor I am not supposed to care about our stock price. But I know I have investors who care about our stock price. More importantly, even if I do not care about our stock price, I do care that no one illegally manipulates our stock price, and the Reg SHO list confirms what he had been telling me, that someone is doing just this. I may not care about our stock price, but I do not think some grandmother should be seeing her savings get affected so that some Wall Street guys can be driving a new Mercedes.

We came out swinging last week with a full page ad in The Washington Post, explaining this issue. It cost $100,000: I donated about $20k of that, and spent a lot of time working with O'Brien through email (as I have never met him yet), getting the ad just right. Meanwhile, he opened his ncans.net site, which explains all of this thoroughly.

In the last few days, The Empire Has Begun To Strike Back. That will be the subject of my next posting.



Posted: Tue Feb 15, 2005 9:40 pm Subject: The Empire Strikes Back (stupidly)
Dear TeamO,

One of the coolest things I have ever seen unfolded before my eyes in the last week. It reminds me of the blogger/Dan Rather fight, and reconfirms in my mind the power of the decentralized swarm on the Internet to overcome centralized structures of power and authority.

Last week I got a call from Carol Remond, a Dow Jones journalist whom O'Brien warned me was in cahoots with Rocker. She tried to put a bunch of quotes in my mouth:

“So Patrick, you are saying that David Rocker is illegally manipulating your stock.”

“No no, I say nothing of the sort. I am saying he is short our stock, and SEC Reg SHO list says someone is naked shorting us. But I have no idea who it is.”

“OK, so you are saying that David Rocker is illegally manipulating your stock.”

This went on for so long that I felt I was being set up: was Carol trying to put words in my mouth to make me sound as though I was slandering Mr. Rocker, thus giving him grounds to sue me?

She made it clear that she was doing a hatchet job, so as soon as I got off the phone with her I wrote O'Brien about the interview, getting on record what I had actually said. Hundreds of people read it on O'Brien’s site, and many dozen (I hear) wrote in to Carol and her editor, telling her that they knew what she was up to, they knew what I had said because I had posted it, she better not try to twist it, etc. In the end, she was thwarted, and the piece she came out with was anodyne and feeble, attempting to criticize me for paying for part of the ad (and ignoring the thrust of the issue entirely).

Again, over are the days when centralized power, whether it be in the media or elsewhere, can just have its way: the swarm of the Internet blunts their attacks.

Now we have another one forming from Lapdog Herb. To date his attacks have been offish, and he seems increasingly frustrated about not being able to sink a claw in on any issue (perhaps that explains him devoting entire columns to seemingly trivial issues about me, such as how quickly I return his calls, or why I might be buying shares of stock in my own company).

He wrote to me today. Normally I would feel awkward about simply posting for the public to read a private email, but since Herb has published my emails to his friend Vickrey, and my own responses to him (Herb), I feel he can have no objection to my publishing HIS emails:


You told Dow Jones that you first talked to the guy who operates the NFI-info.net site in October, after your third quarter call. In a response to my recent column, he left the impression that he first contacted you “after he was gracious enough to have me on the call to thank him for taking my call…and we got to talking about my ‘rant’….

So, when did you first talk: After the third quarter call or fourth quarter call?

Why the discrepancy?

Herb Greenberg”

I sent Herb’s email to O'Brien: his response is found in my next posting.



Posted: Tue Feb 15, 2005 9:48 pm Subject: O'Brien's response to Lapdog Herb Greenberg

I (Patrick) sent Herb's question to O'Brien. O'Brien replied:

Well there goes Herb again. He really seems agitated, does he not? Why is that, I wonder? So much so that he's now inventing things that aren't said. I went and looked at the website, and it doesn't say that I FIRST communicated with you after the CC. It actually says:

"Well, for a guy that finds the law's lack of ambiguity to be perplexing, or enigmatic, I can see where the arrow of time would be an issue. Perhaps I can, in my own small way, help. I contacted Dr. Byrne after he was gracious enough to have me on the call to thank him for taking my call (rare for me, at least), and we got to talking about my "rant" and the eerie coincidence of his company appearing on the Reg SHO list literally the same day or so of the call (actually the night before, unbeknown st to us all) - how that seemed to lend credibility to the case that there were illegal shenanigans going on."

Now, given that Herb is a renowned/notorious (perspective dependent) and presumably competent writer, or at least is coherent and processing rationally, he can probably appreciate that language is a thing of beauty, but also of precision. Words have specific meanings, and when I use them, I mean what they say - specifically. I meant to say that I contacted you after the call.

I did.

That's what the words say. What they don't say is that I first contacted you after the call, or that we never exchanged any correspondence ever before, or that I am the emperor of Prussia in hiding, or that I'm actually an alien overlord set on the planet to torment him. There is a lot of white space in between all those letters, and one with a vivid imagination or suspicious nature can fill the vacuum with virtually anything.

But what it actually says is that I contacted you after the call to thank you, and we got to discussing my observations about your stock. Period. No embellishment required, no inferences necessary. Sometimes, as Freud said (or didn't, but it sounds good), "a cigar is just a cigar."

It sounds to me like perhaps Herb has been watching too many Perry Mason reruns or reading too many Grisham novels, wherein the protagonist exclaims "ah ha!"and hoists the villain on his own rhetorical petard, as 'twere.

This time around though, I'm afraid it's just him groping about for something to make hay with, and coming up short. Maybe it's the picture of the lap dog he's testy about. Or maybe, for reasons that escape me, he views the simple message that the regulators need to enforce the law and stamp out illegal naked shorting as some sort of threat. I wouldn't presume to guess why anyone on the up and up would be threatened by a call to arms to stop illegal activity.

Can you?

All the best."

I like O'Brien.


Posted: Tue Feb 15, 2005 10:11 pm Subject: Conclusions

Well, this has been a heck of a long strand. I wanted you all to know what is going on. We are standing up to some powerful forces, and I know that more fur is going to fly. Before you get all your news from the WSJ, or from "Lapdog" Herb Greenberg, I thought I would take an hour and reveal my side of it.

Once again, I know that any CEO is guilty until proven innocent. You who do not know me have no reason to believe this. But in case you do, know this: around here, we really do try to decide things on principle. Some years ago in this job I had my Jerry Mcguire moment: I saw all these people compromising themselves, and I realized I was one of the insiders who know how the game was played, and I decided just to be honest about it. Why not? What happens? What happens if one does not compromise, but plays it down the middle of the fairway? What happens if one explains to the general public how crooks on Wall Street operate? What happens if I go public with a Dutch auction, just to upset the balance of power as much as I am able? What happens?

The answer is, I do not know yet. More importantly, I do not really care. I am just really curious to see, what happens if I play this game like no CEO ever has before, and just keep explaining how Wall Street works to the general public? Who knows, maybe all those folks are compromising themselves for no reason: maybe anyone can stand up to these bullies, and they all crumble. I am more curious than anyone to find out.

But one thing you can be sure of is that I am ticking off a lot of folks, some of whom buy their ink by the barrel, and all of whom have benefited from the cozy games I am describing. If nothing else, I know that I am not going to be in this job forever, and as long as I am here I want to make as many enemies in that community as I can, simply because they are arrogant parasites, and it's long overdue.

I like my chances.


Copyright © 2005 NCANS.net

ps. By bartermania: IMSO...all shorting should be eliminated now.

- I will not be a slave to or of death cults - n/b/k - NO QUARTER FOR CORRUPTION http://investorshub.advfn.com/boards/board.asp?board_id=3319
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