March 2006 –

Never Say Sith Lord
   (Continued from previous page)

As if he didn't have enough critics on Wall Street, Byrne has cultivated another large encampment of antagonists, in the media. He, his company, and his cause have been the focus of dozens of articles, in recent months mostly negative, in the business and financial media. The SEC's recent, withheld subpoenas of three journalists, in connection with their communications with analysts, must have been a source of vindication, if not outright delight, to Byrne. Three days after the subpoenas were delivered, Byrne reportedly sent a taunting email to Herb Greenberg of Marketwatch.com, which started this way:

"I am just sitting here with a glass of wine in my hands, reflecting on what a really bad week you and your friends have had."

The email excerpt appeared in a Joe Nocera column titled "Overstock's Campaign of Menace," appearing in The New York Times. Nocera went on to thoroughly bash Byrne as an enemy of the free press, and to defend Greenberg as "one of the straightest shooters I know."

Patrick Byrne himself makes for great copy, and a colorful character study. No typical tech entrepreneur, he holds a Ph.D. in Philosophy, from Stanford. He has overcome cancer, he says, and bicycled across the country four times. A child of privilege, he grew up in home where Warren Buffett was an occasional houseguest, when his dad headed up Geico. Even Byrne's detractors concede his stellar intelligence. His acerbic written commentaries, posted frequently on the Internet, are peppered with Latin references and Nietzsche quotes. Byrne is willing and able to match wits with most hard-bitten reporters, who, he says, often operate with cynical, hidden agendas. He is both an attack dog and a lightning rod, revered and reviled in the disparate factions of the securities/business/media complex. Many people think he is nuts.

In a quarterly earnings conference call last summer, he said the manipulation of Overstock's share prices was led by "one of the master criminals of the 1980s." Some speculated that he meant Michael Miliken, the junk bond king who was convicted in 1990 of fraud in the bond market, and did 22 months in prison. Byrne has refused to identify the alleged mastermind by name, saying the identity may come out as the legal proceedings unfold. But he likened the alleged manipulator to a "Sith Lord" character in Star Wars.

The Sith Lord reference has brought Byrne enormous ridicule, by reporters who portray it not as a quaint quote, but as evidence of delusion. One of his most persistent critics is Jeff Matthews, a hedge fund manager who publishes a stock market blog called "Jeff Matthews Is Not Making This Up." On August 12, 2005, Byrne and Matthews squared off in a contentious joint interview on CNBC. One stock market writer later called their confrontation "the greatest 15 minutes of television I've seen in the past year." It was fascinating, I agree, because it well illustrated the enmity that divides Byrne from the Wall Street establishment. You can view it yourself at this site.

The CNBC interview had Byrne reading aloud from a sworn affidavit that, he says, came from someone who participated in conversations about a plan to manipulate Overstock stock, through skewed analysis and biased articles in the media. "They were coordinating the timing of their reports to please Rocker," he reads, referring to Rocker Partners, the short-selling hedge fund that Byrne and Overstock have sued.

Personally, I found Byrne's allegations to be precise to a fault. But Matthews repeatedly characterizes the assertions as "incoherent" and "incomprehensibly bizarre," referring also to statements made by Byrne in a conference call a few days earlier. Matthews accuses Byrne of pursuing "a vast conspiracy." He makes the most of Byrne's Sith Lord comment, assuring the program's host that he is "not making this up."

Matthews is pressed to explain what he considers bizarre. "What can you say?" he pleads, looking pained and seeking support from the host. "I think Patrick's comments say it all," he insists. Twice, he goes off in slow-moving harangues, straining to land a blow while he seems to ponder exactly what to say. ("We're all big boys"…"We're all just trying to make money.") Twice, he says, "It doesn't work this way," implying that Byrne is somehow breaking the rules.

There is nothing new or bizarre, Byrne counters, about allegations of cheating in the securities markets. Trading scams in the 1980s landed Drexel Burnham Lambert traders (including Miliken) in prison, he notes. Stock market manipulations by Jesse Livermore, in the 1930s and 1940s, are chronicled in a thinly disguised biography titled "Reminiscences of a Stock Operator." Matthews acknowledges the Livermore book, but oddly calls it "the bible of the business."

Byrne defends his Sith Lord remark as what it was: a metaphor about manipulation, and "a very easy reference any thirteen-year-old could understand." Again he declines to identify the short-selling mastermind, saying the names may come out in court. Byrne asks Matthews, "Can you remember any manipulation where someone might later be called the Sith Lord of manipulation?"

Matthews hesitates. "What you label a guy…"

In frustration, Byrne says, "There's not a single viewer to whom what I just said is incoherent." Then speaking directly to viewers, he adds, "If you agree what I just said is coherent, then you know this guy is an empty suit."

I had to agree. Matthews came off as an empty suit.

(Continued)
  Fighting Back
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