Sunday, August 12, 2007

Patrick Byrne, CEO of, Admits to Being Target of Government Probe

Last Friday, Patrick Byrne, CEO of, finally admitted in his "Take 5 with Patrick" blog, hosted on's web site, that he is in fact the target of a federal investigation despite previous statements by him denying that he was the focus of a Securities and Exchange Commission probe.

Note: According to Patrick Byrne's blog, his latest blog post has been edited over 20 times. I am quoting from an earlier version (5th edit) of Patrick Byrne's remarks. Download a copy of Patrick Byrne's earlier draft blog remarks here.

In his long rambling blog post filled with accusations of government corruption, Patrick Byrne expressed frustration that the Securities and Exchange Commission does not believe his delusional paranoid fantasies about a massive coordinated financial conspiracy against our capital markets. Two years ago, Byrne claimed that a person, whom he is yet to personally identify, known as the Sith Lord, was masterminding a massive scheme to wreck havoc on our financial system and his company. In Patrick Byrne's paranoid world, if a person does not believe his whacked out paranoid fantasies and delusional conspiracy theories, they must be corrupt.

Patrick Byrne called the Securities and Exchange Commission a "captured regulator" and a "corrupt Sheriff" that "turns a blind eye to thuggery." An angry, spiteful, and delusional Patrick Byrne wrote:

SEC Commission Annette Nazareth, who has a vested interest (through marriage) in continuing the cover-up, was quoted as being dismissive of my claims (though they were already supported by hard, uncontestable data, much of it in published economic research). SEC Commission Campos also personally opposed me, telling an associate of mine in a public forum, "Imperfect regulation does not justify vigilantism by Patrick Byrne or" [Emphasis added.]

He smeared Senator Richard Shelby of Alabama calling him, "an utterly despicable politician" and accused Senators Chuck Grassley and Arlen Specter of giving in to "irresistible forces of fraud and money."

In a previous post on my blog entitled, "Did Patrick Byrne, CEO of, deliver a Trojan horse to the Securities and Exchange Commission?," I detailed how Patrick Byrne orchestrated a Securities and Exchange Commission investigation of Gradient Analytics, an independent research firm and its client Rocker Partners. Gradient had written reports critical of's accounting policies, financial disclosures, corporate governance, and business model.

Byrne had claimed that three former Gradient employees could prove allegations of collusion between Rocker Partners, a short seller, and Gradient Analytics to write reports disparaging In a post on the Motley Fool message board, using his alias Hannibal100, Byrne had claimed that the three former Gradient employees are "extremely credible, stand up guys."

After finding that the accusations of three former Gradient employees were not credible, the Securities and Exchange Commission decided to drop its investigation of Gradient. The Securities and Exchange Commission continues to pursue a formal investigation of Patrick Byrne, who delivered a Trojan horse diversion to them.

In last Friday's post on his "Take 5 with Patrick" blog, Patrick Byrne, expressing frustration with the SEC, wrote:

I pushed hard on the SEC but drew no response other than becoming the target of a federal investigation.

Patrick Byrne's disclosures about the Securities and Exchange Commission investigation of and him have been, to say the least, deceptive and contradictory.

According to a Dow Jones News Wire article published on August 12, 2005, entitled, "Overstock Faces SEC Probe, Details Short-Selling Lawsuit," (subscription required) by Carol S. Remond, Patrick Byrne had disclosed at a conference call that the Securities and Exchange Commission had begun an informal inquiry of about six months earlier in February 2005. He claimed that the "SEC was pushed into starting an inquiry into his company."

However, despite Patrick Byrne's statement about an informal Securities and Exchange Commission inquiry of, the company made no disclosure of such an inquiry in its filings to the SEC until after a formal government investigation of was launched on May 9, 2006. The SEC subpoenaed a broad range of documents from, including all documents relating to the company's accounting policies and financial disclosures.

After the Securities and Exchange Commission launched its formal investigation of, Patrick Byrne claimed to be the first CEO in history to celebrate receiving an SEC subpoena. He continued to claim that there was a conspiracy was behind the now formal SEC investigation of his company:

I may be the first CEO in history to celebrate receiving an SEC subpoena. Some of the requests suggest the whispering of the blackguards, but I remain unconcerned about their hokum.

However,'s web site implied that and Patrick Byrne were not the focus of the SEC investigation by claiming that, "The SEC is conducting an investigation on," rather than stating that the Securities and Exchange Commission is conducting an investigation of (Emphasis added.].

By not changing the wording of its description of the SEC investigation,'s web site, even today, continues to imply that both the company and Byrne are not the focus of a Securities and Exchange Commission investigation.

Nine days after Patrick Byrne had claimed to celebrate his company receiving a Securities and Exchange Commission subpoena, on May 17, 2006, Byrne received a personal subpoena from the Securities and Exchange Commission. However, and Patrick Byrne delayed the disclosure of Byrne's personal SEC subpoena for almost an entire year.

After Patrick Byrne's personal SEC subpoena was disclosed in's 10-Q on May 9, 2007, almost a year after he received it, Byrne claimed that he and are not the focus of the SEC investigation. On May 10, 2007, in his "Take 5 with Patrick" blog, hosted on's web site, Byrne claimed:

Here is the punch-line: as a matter of law I must tread carefully here, but I can say that the heart of the investigation is not, I would suggest, Overstock-centric, but rather, concerns itself with a strange set of relationships among ..... Well, let me just say that the irony here is just delicious. [Emphasis added.]

Two days later, in a post (message number 7271) on InvestorVillage under his alias Hannibal, Patrick Byrne continued to claim that he and are not the focus of a Securities and Exchange Commission investigation:

...I received another [subpoena] addressed to me as a person, though it was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all. As though there is a world of difference between a subpoena addressed to our corporate lawyer asking for our CEO's materials, and one addressed to me at our corporate address: I hate to disappoint, but that distinction is such a fine one it did not occur to me it was worthy of a second press release. The funny part is how it still has not dawnede on the miscreants that a fair bit of the material being requested by the SEC concerns THEM, not me or Overstock. [Emphasis added.]

In light of Patrick Byrne's contradictory statements about the SEC investigation of and him, a reasonable person may conclude that Byrne is an out and out liar.

After admitting that he is the target of a government investigation and viciously attacking various government officials, Patrick Byrne stated in his blog:

PS Regarding the federal investigtion: I have no beef with it, actually. Everything I have done has always been legal and ethical, but I do recognize that it has been irregular and, coloring outside the lines as far as I have, I do not begrudge the federal attention I ahve received. In addition, I have no desire to express disrespect for, or hurt the feelings of, those hundreds of honest, hard-working government employees who come to work each day wanting to do a good job regulating the capital market. It is simply the case that I think a fair share of their bosses, the brass at the SEC, have been corrupted in one way or another. The departure of the OIG, and especially Annette Nazareth, is a first step in fixing this most vital of regulatory bodies. [Emphasis added.]

In Patrick Byrne's delusional and paranoid world, leading a campaign of intimidation, harassment, threats, litigation, anti-Semitism, blackmail, deceit, lies, and smears in an effort to silence his critics is legal and ethical.

Patrick Byrne ignores the fact that his behavior is subject to's Code of Business Conduct and Ethics and SEC rules which require disclosure of his violations of the company's code of ethics. So far, has failed to appropriately disclose Patrick Byrne's blatant violations of's Code of Business Conduct and Ethics in violation of SEC disclosure requirements.

Investigative journalist, Gary Weiss, a frequent target of Patrick Byrne's vindictive smear campaign, who broke the news of Byrne's latest admission, wrote in his blog:

I guess "irregular" is Byrne-speak for stuff like hiring a full-time cyberstalker [Judd Bagley, Director of Communications at], not disclosing an SEC subpoena for a year, saying that the company was in an OK cash position and then raising money through selling stock, setting up an astroturf website to attack his enemies, and a bunch of other sliminess that has been chronicled in the media. [Emphasis added.]

With Patrick Byrne now acknowledging that he is the target of a federal probe into his activities, it remains to be seen whether he will keep his top henchman, Judd Bagley, at Will Patrick Byrne seek to distance himself from his cyberstalker pal, Judd Bagley? Does Judd Bagley know too much about Patrick Byrne's smear campaign? If Patrick Byrne fires Judd Bagley, Bagley may turn on Byrne and cooperate with the government investigators.

It appears that Patrick Byrne may end up like a hog in a cage.

Written by,

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

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