Overstock Circus, Take #2

A kind of parlor game follows every quarterly conference call of the slo-mo train wreck Overstock.com (OSTK): What will be the latest distortions, fantasies and outright lies? Yesterday's produced such a rich assortment that it's hard to know where to begin.

The fantasy emerged after the conference call, in an appearance on Fox Business News. Herb Greenberg reports that Overstock's dipsy doodle CEO Patrick Byrne said that he "happen[ed] to know for a fact that there’s a fax machine in the CNBC offices where hedge funds send instructions and journalists sit around and take instructions.”

Host Liz Claman shot back, “Well I worked in CNBC and I never saw that fax machine.” This was a refreshing change from the usual reaction of interviewers in Byrne's live TV appearances, who usually sit gape-mouthed after Byrne sets off a stink bomb like this.

Byrne's rejoinder was, "I have a good source on that." Translation: "I'm making this up out of thin air."

Herb wonders whether it's "time to feel sorry for Patrick Byrne. . . whose comments at times, such as today, appear to be detached from any sense of reality."

I assume Byrne won't be posting a video clip of this embarrassing spectacle on his website the website operated by his 100%-owned hedge fund. But who knows? Maybe he is as detached from reality as he appears to be. I have my doubts. (One of his more dimwitted followers proudly posted a clip here.)

Turning from pathology to garden-variety lies -- they came fast and furious on the conference call, and I am sure that forensic lie-pathologists will be dissecting this one for weeks. A number of boners stood out. Here are two of them:

The first involved the non-comparability of the first quarter sales numbers to the ones a year ago. That's an undeniable fact, as laid out by reformed felon Sam Antar in a blog item on Monday.

General counsel Jonathan E. Johnson was quoted by Wired.com as saying the following:

"Sam is just wrong,". . . "They're both GAAP numbers . . . I can't read his blog because it's so full of lies."

The only problem with this statement is that it is a flat-out lie. Overstock was comparing a non-GAAP number (the first quarter 2007 number) with a GAAP number (the first quarter 2008 number). Sam has more details. "Leave it to Overstock to make matters worse," says forensic accountant Tracy Coenen.

Tracy further expounds on the farcical nature of this whole charade in a follow-up.

I'm saving the best for last. The pièce de résistance was the fish story provided on the conference call and in the Wired article as to why the earnings were released unexpectedy on Friday. As I pointed out the other day, this was a blatant effort to squeeze the shorts on an options expiration Friday, and to bury devastating news of a five-county criminal investigation of its advertising practices by California prosecutors. Even one of the normally supine analysts who cover this company acknowledged at the time that a short squeeze was at work.

Explaining this one away would take a real whopper, and Overstock's "designated liar" (the way you might appoint a "designated driver" after a party) obliged in the Wired article:

"What happened was this: Patrick Byrne was speaking at Wharton [School of Business] on Friday, and we wanted to get to the numbers out before he gave that speech," Johnson says.

But if that's the case, then why did the company schedule the release of fourth-quarter results beforehand, but it didn't schedule the release of first-quarter results?

"This time we did not know when we would have a full sign off from auditors," Johnson says.

Yup. Overstock is physically incapable of putting out an earnings release when its invaluable CEO, a man dedicated 24/7 to editing Wikipedia and posting on message boards selling memory foam and toasters, strays from the premises and is engaged in giving one of his excellent speeches.

So "what happened was" that the auditors "signed off" on the earnings, a runner was sent to check if the CEO was giving a speech or in the bathroom or sumthin and zoom! the release went out. (Which kinda begs the question of why the auditors would have to sign off on first quarter earnings, since quarterly results are unaudited, but what the hey....)

Or maybe the speech was to contain details of the quarterly results, so rather than simply not talk about the numbers, they rushed out the release and accidentally on purpose surprised the market.

Both are fantastically believable scenarios. I believe 'em. Don't you?

UPDATE: The widely followed Silicon Valley Insider spread word to all and sundry about Byrne's sicko fantasy, and was picked up by Huffington Post and TV Newser. The man's capacity for self-humiliation is awe-inspiring.

Comments

[Tony F]

Do you people who write these articles recognize that, despite all the claims against Patrick, he contentions in his lawsuit against Gradient (the "research" firm and Copper River (fka Rocker Partners) the hedge fund) continues to be supported by and wins in the courts who are ruling positively about his lawsuit and allow it to continue while also dismissing much of the counterclaims made by the guys wearing the black hats?

It's hysterical! Thanks for the levity this morning!!

Go Dr. Byrne and OSTK!

[User 133778]

Let me parse the term "the auditors signed off on the first quarter numbers". Well actually that statement is true and false. It is true that quarterly numbers are not audited. However, most outside auditors generally request that they get to see the quarterly earnings press release and the 10Q for most public companies before filing or release. So, my guess is that the auditors did sign off on the release as part of the ongoing audit procedures that often occur throughout the year on a public company, but the level of assurance an investor should get from that statement is very low.

[Malden]

What the heck is the article about? Lots of hot air about nothing. What matters is earnings today and earnings tomorrow. This looks like a hit piece to me. I think Patrick must be right, these guys are out to get OSTK. I think it's time to buy. Somebody is getting nervous.

[Theseguysforreal?]

Assuming the reason for releasing earnings on friday was to squeeze the shorts, what's the problem? It's not illegal, is it? When you beat your chests proclaiming naked shorting does not happen and when it does happen, it's not illegal, why are you so bothered when a company tries to counter your dirty tactic with a perfectly legal one?

[damastr]

I think the people who keep bashing Patrick Byrne are crazy lunatics. Why don't they focus on the Overstock business and provide more information on that. All said and done, it's Patrick Byrne who has invested the most money in OSTK. And he has been buying OSTK stock continually. Has any of these idiots stopped to think why?

[grza29]

I would be interested in a piece about Barron's. Has their readership been increasing/decreasing over the years? It seems like their articles have very bad editorial management. We all know about the Amazon.Bomb cover from years ago, and I someone forwarded me a negative article from COGT (I own) last year and the analysis was all wrong, from the balance sheet figures they were quoting, and the overall call which was that it could go down to $4, with their source being an "unnamed hedge fund". There's 2000+ hedge funds, and your only source is an anonymous hedge fund. Then I see this Gary Weiss guy, with Barron's in is bio and his source is "reformed felon ____"!!! Since when did serious journalists start thinking a "reformed felon" was a better source than let's say Warren Buffet, Peter Lynch, any sell-side analyst sitting on the earning's call, a chimpanzee that throws darts at the Wall Street Journal.....?

I can't believe I just added to this guy's hit rate! I think I'll contact Seeking Alpha and ask them what type of filters they use to select writers.

[GrahamCracker]

This guy Weiss is like a metal detector -- in reverse. Every time Byrne gets close to uncovering something rotten on Wall Street, Weiss starts chirping like this. Chirp, chirp, chirp away, Weiss.

[Crazy eddiescrewed us]

More junk. Makes you wonder if there is a vested interest here by those writing these piece of trash articles.
Interesting how this "Journalism" has the look of bashing instead of truly reporting anything.

[fxtrader07]

the naked shorts scam goes on unabated in this so called free and fair market economy. but all that guys like mr weiss obviously are interested in is to attack Mr Burns. fax machine or not, the naked shorts scam is for real - and wallstreet does its best to cover up and let the case die.
perhaps mr weiss could do something useful with his time and either write some piece containing real substance or at least just do readers of SA a favour by refraining from issuing useless garbage
thank you.

[SanjeevParsad]

So Garry, are you saying that Patrick Byrne, Jonathan Johnson and David Chidester along with the executive board are manipulating Overstock.com's financial statements?

Are you saying that this same group above colluded to create a short squeeze in Overstock.com's stock?

You can provide an easy answer...yes or no to both questions. Thanks very much!

[SanjeevParsad]

Hi Gary,

Why would you respond to my questions with the comment "Do you like mango chutney?" Why the evasiveness? Please answer the question.