March 2006 –

Naked Shorting: Fighting Back
   (Continued from previous page)

Most journalists are honest. Byrne has expressed that opinion many times. "But if there are a thousand financial journalists and one percent are bent, that's ten journalists," he said in the CNBC exchange. "I'm talking about three or four individuals." Only a few journalists (presumably including the ones who got SEC subpoenas) have conspired with short sellers to hurt Overstock, he says.

But clearly he is no great admirer of the business and financial media. His views are expressed in one of his podcasts. "The Wall Street press is a mouthpiece of Wall Street," he says. Byrne has taken issue with the coverage of his company in many business publications. Much of it is disingenuous, he says, written by reporters with an axe to grind. Early this year, he made an unusual move to keep one reporter honest. Tim Mullaney of BusinessWeek sent an exhaustive list of questions, via email, for Byrne to consider in advance of what would presumably be a telephone interview. Byrne posted his answers, and the questions, on the Internet.

The result is an unvarnished view of the Q&A process. Which included many questions that Byrne, based on his answers, clearly considered ill-informed or hostile. Here's an example.

Q:  "Without any reference to this person's non-existent illicit past…" The question goes on to inquire about a female employee of Overstock (more just below).
A:  "By saying, "Without any reference to this person's non-existent illicit past" you have referred to this person's non-existent illicit past, so I will address your point…."

The employee in question, according to Byrne, was once wrongly believed to be a stripper because of her first name, Stormy. Short sellers still knowingly disseminate the false rumor that she was once a stripper, he says. "They continuously feed it to compliant reporters who dutifully bring it up, often in these 'Without any reference to this person's non-existent illicit past' ways."

Byrne justifies his decision to post the BusinessWeek interview online, saying the reporter never stipulated it would be off the record. True enough, we can assume. In fact, any is interview is assumed to be on the record unless the parties explicitly agree otherwise. For that reason, it's usually not even discussed. But an on-the-record understanding means only that whatever the interviewee says might end up in print. It has never implied that a writer's questions are fair game for public viewing, as Byrne purports to believe. Before the Internet, it's hard to fathom exactly how that would be practical.

As for the answers, normally they appear only in the final article--as selected, edited, and perhaps slanted by the writer. Which is the problem, Byrne would say. Traditionally, all the cards were held by the media. With the web, new options have emerged, and maybe the rules have changed. For readers, the chance to see unedited answers, along with the questions, may lessen the effect of spinning by the media. Audio-recorded and videotaped interviews, it seems, could be dually disclosed in the same manner. On the other hand, providing questions in advance is not always reasonable to expect; it can foster spinning by interviewees, after they huddle with their PR people. Sometimes the point is, "What do you know today?" Perhaps Byrne has leveled the playing field a bit, changed the rules, and invented a new brand of hardball.

Here's another example of Byrne's endeavor to control of the debate, via the media. Immediately after he sued Rocker Partners and Gradient Analytics, the firms said they'd counter-sue. But eight months later, as of early March 2006, they still hadn't done so. Byrne then put out a press release, viewable on any business news web site, posing this question: "Where's the Countersuit You Threatened?"

Here's its first paragraph: "Eight months ago Gradient and Rocker were thumping their chests threatening to counter-sue us. I said at the time that they would not because these miscreants could not survive the discovery a counter-suit would trigger. They still have not filed suit, and now, once again, they are doing whatever they can to stall the discovery process. I once again invite them to counter-sue, and let us move to discovery quickly."

Bloggers Fight Back

The blogoshere has become a big part of the media game, and Byrne critics aren’t the only participants. In another recent CNBC appearance, Byrne held up a sign bearing the URLs of two activist blogs he's associated with. One was TheSanityCheck.com, where he posted his uncut BusinessWeek Q&A. The other was NCANS.net, operated by the National Coalition Against Naked Short Selling.

More than any CEO in America, Byrne is described in the media as nutty, crazy, kooky, etc. "I don't know what planet this guy is living on," said Herb Greenberg in a recent CNBC appearance. The next day he called Byrne "an emotional nut job."

Why the constant "nut job" characterization? First, Byrne clearly chooses to operate outside of the mainstream of Wall Street and Corporate America. He does things differently. He delves into arcane subjects mostly ignored by the media, such as naked short selling, with more clarity and greater aplomb than what many reporters would be even capable of. He levels personal accusations. He has labeled a few journalists (but only a few) as unethical, manipulating liars. And he has criticized some of the media's most powerful institutions.

For journalists writing about Byrne, the calculation must go something like this: He's' a bright guy, but he's an outsider. Even he admits that his case against short sellers is nearly impossible to prove. So I could do a ton of research and write a complicated story with the unconvincing conclusion that maybe something untoward is going on--in which case I might be attacked as a gullible fool, by the readers or by my boss. Or I could do what so many other writers have done--paint Patrick Byrne as a paranoid, conspiracy-obsessed whacko. Which is easy enough to do, with the Sith Lord quotes and all. It'll be fun reading, and quickly forgotten. Byrne is so busy fighting fires elsewhere, he'll barely notice another unflattering article.

All of which begs the question, is he a whacko? By now it should be evident that I've come to praise Patrick Byrne, not to bury him. In fact, I regard him as one of the brightest lights in Corporate America. His privileged past (at the knee of Warren Buffet, etc.) did not derail his sense of purpose. I admire Byrne's iconoclastic observations about business, Wall Street--and yes, of my first profession, journalism. I think he's mostly right, about short selling and such. But the traits in Byrne that I admire most--particularly the courage to "think different," as they used to say at Apple Computer--are what others find galling.

My curiosity about the matter began, ironically, when I spotted one of those "Byrne is Nuts" stories, on the web. From there I clicked over to something he'd written, which, as I recall, seemed exceptionally witty and insightful. If he's a nut, I figured, he's an intelligent one. That eventually drew me (like many others, perhaps) toward the naked short selling controversy. All of which sounded paranoid and irrelevant at first. But I've come to believe the problem is quite real, after a couple months of enlightenment. Which is a lot more time, I suspect, than was spent in research by most of the writers who have concluded that "Byrne is Nuts."

He is indeed different and eccentric; a gadfly and a rogue, running a public company while he resists the Wall Street game. Does this sound familiar? (Google?) Has he spent too much effort pursuing a principled cause, and not enough running Overstock? Maybe. Should he have stopped short of using the term "jihad" to describe his campaign to stop stock market criminals? Should he shut up about Sith Lords? Has he pissed off too many people?

Maybe. But here's my question: Am I the only one in America to whom life seems to get a little sleazier every day? When one guy tries to do something about it and becomes a public punching bag, what's up with that? If Patrick Byrne continues to be ignored, or portayed as a whacko, by journalists too busy, lazy, or conflicted to do their jobs, who is injured the most?

Probably not the journalists, who will keep their jobs as long as the boss is happy. Certainly not the powerful hedge funds, which will continue to practice illegal naked short-selling while they cook up other scams. Maybe not even Patrick Byrne. If Overstock's market value is hammered sufficiently, he and his wealthy family and other investors could take the company private, buying in all the shares at a bargain price. Then maybe we'd never hear another word about naked short selling.

Who is hurt? As always, of course, the masses. Because, to quote the French poet Nicholas Boileau: "Greatest fools are the most often satisfied."

Got thoughts?  Write to me:  tom@larocque.biz