Wednesday, April 25, 2007

Questions the Securities and Exchange Commission may ask Patrick Byrne (CEO of Overstock.com) in its investigation of (not “on”) Overstock.com

As the Chief Financial Officer of Crazy Eddie, I pretended to be transparent our shareholders, Wall Street analysts, the press, our auditors, our independent directors, and the government investigators. As a criminal, I thought that I knew how to lie when I was seldom asked a good question. I have said that “white collar crime is a crime of deceit and white collar criminals are artful liars.”

One component of white collar crime is the use of deception. In my previous post on this blog, entitled “The Deceptions of Patrick Byrne (CEO of Overstock.com) and Judd Bagley (Director of Social Media at Overstock.com), I analyze various deceptions employed by Patrick Byrne and Judd Bagley in their efforts to distance the smear web site antisocialmedia.net from Overstock.com.

Another component of white collar crime is the use of smears and intimidation against any person that stands in the criminal’s way. My previous blog post “
Don’t Mess with Overstock.com CEO Patrick Byrne” describes some of the consequences of crossing paths with Patrick Byrne. An effective criminal uses tactics such as questioning the integrity of critics and smearing them in an attempt to deflect inquiry into their actions.

An effective criminal knows when they should not answer questions at all. For example, they can exercise their rights against self-incrimination afforded them under our Constitution. Prior to testifying, they can pretend to ignore important questions and hope that they are never confronted with such questions by government investigators.

The Securities and Exchange Commission is currently investigating Overstock.com to determine if there are any violations of securities law by Overstock.com management and others possibly working in concert with them. Soon we may be able to determine if any securities laws were broken by Overstock.com, its management, and others as the Securities and Exchange Commission investigation of Overstock.com continues.

Patrick Byrne wants to ignore questions

Patrick Byrne (CEO of Overstock.com) purports I am “inane” and that I should be “ignored.”

For example, in a post (message # 4463) on InvestorVillage.com, on February 2, 2007, Patrick Byrne wrote, under his alias Hannibal, he wrote:

I laughed so hard at your message that I had to go back and read enough of Ignored Sam's messages to see what he was saying. It seems that his whole shtick now is that no one will answer his questions so he must have a point (instead of, for example, reading it that he is inane).

Patrick Byrne purports to believe in transparency

I quote the following from an interview with of Patrick Byrne, published on redcoatpublishing.com entitled “The UN-CEO” in July 2004:

And Byrne’s quirky management style is not limited to his hiring practices. He has some unusual ideas about how companies should be run. For example, he believes in telling the truth about how the business is going. “I think that I owe the shareholders an honest explanation, once a quarter, of what’s happened—what’s gone well and what hasn’t gone well,” he said.

The Securities and Exchange Commission investigates Overstock.com

The Securities and Exchange Commission began investigating Overstock.com in May 2006. Overstock.com’s recent 10 – K for the fiscal year ended December 31, 2006 and other reports filed with the SEC contain the following representation:

On May 9, 2006 we received a notice of an investigation and subpoena from the Securities and Exchange Commission, Salt Lake City District Office. The subpoena requested a broad range of documents, including, among other documents, all documents relating to our accounting policies, our targets, projections or estimates related to financial performance, our recent restatement of its financial statements, the filing of our complaint against Gradient Analytics, Inc., the development and implementation of certain new technology systems and disclosures of progress and problems with those systems, communications with and regarding investment analysts, communications regarding shareholders who did not receive our proxy statement in April 2006, communications with certain shareholders, and communications regarding short selling, naked short selling, purchases and sales of our stock, obtaining paper certificates, and stock loan or borrow of our shares. We have responded to the subpoena.


Patrick Byrne discusses the Securities and Exchange investigation of Overstock.com

Shortly afterwards, in a news release dated May 9, 2006, Patrick Byrne said the following about the Securities and Exchange Commission’s investigation into Overstock.com:

Overstock.com Chairman and CEO Patrick Byrne said, “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. In truth, I am gratified to see that the SEC is looking into the issues about which I have been speaking: I believe our capital markets are broken in a deep way, our system of corporate voting and governance is a hoax, the savings of Americans are being drained through our financial system’s fissure of unsettled trades, and the system appears to be cracking around Overstock.com (of course, I could be proved wrong if they would force the settlement of, or even reveal the size of, all unsettled trades in OSTK, which I believe number from 7 to 30 million shares).

On the Overstock.com’s web site, he describes the SEC investigation as not being directed at Overstock.com:

Q: Was Overstock behind the SEC subpoenaing business journalists?

A: No.

Q: Has Overstock been subpoenaed?

A: Yes. We received a subpoena from the SEC on May 9, 2006. Prior to receiving the subpoena, we were already cooperating fully with various agencies, including the SEC.

Q: Is Overstock being investigated by the SEC or other agencies?

A: The SEC is conducting an investigation on Overstock.com (see previous question). We are not aware of other investigations by any other agencies.

Note: Italics added by me.

On December 27, 2005, prior to Overstock.com receiving its SEC subpoena, Patrick Byrne described the SEC investigation of Gradient Analytics (since dropped by the SEC). At that time, he was more direct in his language as it related to Gradient:

"Incidentally, during the interview, the Bloomberg reporter asked me about our lawsuit against Rocker and Gradient," said Byrne. "As part of my response, I mentioned the SEC's investigation of Gradient for a copy of the SEC letters which I had previously provided to Bloomberg. Curiously, at that moment, Bloomberg cut away from the interview without warning to a commercial and returned midstream to the interview only when I had finished discussing the SEC's investigation of Gradient."

Note: Italics added by me.

Patrick Byrne was able to write “…SEC's investigation of Gradient…” However, when describing the SEC investigation of Overstock.com, even after they dropped their investigation of Gradient Analytics, he continues to purport that it is an investigation “on Overstock.com” rather than of Overstock.com, on the company’s web site.

Patrick Byrne understands the use of the terminology “investigation of” versus “investigation on” as illustrated in the following representations he made about his WorldStock project on Overstock.com’s web site:

All producers sign a statement of principles concerning the manner in which the goods are produced, and we conduct our own investigation of such suppliers and their reputations.

Note: Italics added by me.

The Securities and Exchange Commission has dropped its investigation of Gradient Analytics but still investigates Overstock.com

On February 14, 2007, the Securities and Exchange Commission dropped its investigation of Gradient Analytics, while they continue their investigation into Overstock.com today.

Floyd Norris, the New York Times Financial Correspondent, wrote in a post on his blog “Notions on High and Low Finance” entitled “Overstock Foes Win One” (subscription required) the following commentary:

Now that we know the government won’t go after the people who said Overstock stock was overvalued, we can wait to see if it will go after Overstock itself.

After posting the 10 – K disclosure (see above) by Overstock.com about the SEC investigation on his blog, Norris continues:

That list includes just about everything Gradient complained about. Could this be a case where a company complains about a short seller and ends up facing S.E.C. charges itself? We’ll see.

The Securities and Exchange Commission may question Patrick Byrne

Patrick Byrne may eventually be questioned and be required to testify under oath by the Securities and Exchange Commission as they investigate Overstock.com. He may have testified already.

Therefore, I have some questions for Patrick Byrne about issues I believe that the Securities and Exchange Commission may be concerned about. Let’s hope he can answer these questions without deception, without deflection, truthfully, and unambiguously.

After all, Patrick Byrne, CEO of Overstock.com, has represented on Overstock.com's web site:

I wish to set a gold standard in communicating with candor your firm's results.

Questions for Patrick Byrne aka Hannibal (CEO of Overstock.com) relating to Overstock.com financial disclosures

Selected Financial Information from Overstock.com's Financial Reports (below):



In Thousands $

In Thousands $

Quarter Ended 09/30/06

Quarter Ended 12/31/06

Revenue:

Direct Revenue

56,564

98,158

Fulfillment Partner Revenue

100,321

195,871

Total Revenue

156,885

294,029

Cost of Goods Sold:

Direct

51,037

101,730

Fulfillment Partner

84,483

164,926

Total Cost of Goods Sold

135,520

266,656

Gross Profit

21,365

27,373

Gross Profit - Direct

5,527

(3,572)

Gross Profit - Fulfillment

15,838

30,945

Gross Profit Percentage - Direct

9.8%

-3.6%

Gross Profit Percentage - Fulfillment

15.8%

15.8%

Gross Product Inventory

73,282

26,859

Reserve for Obsolete and Damaged Inventory

(4,500)

(6,585)

Net Product Inventory

68,782

20,274

Gross Reduction of Inventory

48,508

Reduction of Inventory due to deconsolidated certain assets related to the variable interest entity

(5,986)

Change in Consolidated Net Inventories

42,522

Reserve for Obsolete and Damaged Inventory as a Percentage of Gross Inventory

6.1%

24.5%

Reserve for Sales Returns

1,800

3,600

Reserve for Sales Returns as a Percentage of Total Revenue

1.1%

1.2%

Total Revenue

156,885

294,029

Cost of Goods Sold:

Product Costs, Freight Costs, and other Cost of Goods Sold

123,187

248,025

Fulfillment Costs

12,333

18,631

Total Cost of Goods Sold

135,520

266,656

Product Costs, Freight Costs, and other Cost of Goods Sold as a Percentage of Total Revenue

78.5%

84.4%

Fulfillment Costs as a Percentage of Total Revenues

7.9%

6.3%

Total Cost of Goods Sold as a Percentage of Total Revenue

86.4%

90.7%

Gross Profit Margin

13.6%

9.3%



I quote Patrick Byrne’s remarks from Overstock.com’s 3rd quarter fiscal year 2006 earnings call transcript, relating to inventories and gross margins:

I think it should. I am going to put some meat on that, because we think that we can dramatically reduce inventory from here. But to move that amount of inventory, core inventory, we are giving great deals, better than -- well, we are giving great deals and clearing a whole bunch of stuff out, so we will end with extremely fresh inventory and a much smaller amount than you have ever seen us run with as a fraction of sales.

But to do that, to clean out every nook and cranny in the warehouse, is going to require clearance prices on it, so that is why the margins are going to hurt.

I quote the remarks of Jason C. Lindsey, Overstock.com’s Chief Operating Officer from the 4th quarter earnings call transcript, relating to inventories and gross margins:

All of the things we have talked about before as far as classifying all of our SKUs as either red and green and 80% of our -- excuse me, 20% of our inventory was doing 80% of our gross profits, or even more than that. We took all that to heart in the fourth quarter and although the fourth quarter results are very bad, and I admit they are very bad, they were bad on purpose. In other words, we used the fourth quarter to get rid of all the slow-moving inventory. I am quite pleased with the inventory balances we have now.

Note: Italics added by me.

I quote the following disclosure from Overstock.com’s 10 – K, for the fiscal year ended December 31, 2006, relating to gross margins:

Commentary—Gross Margins. We consciously and aggressively discounted older inventory during the fourth quarter, and as a result, our direct gross margins were negatively impacted. However, we did this to significantly clean and reduce our inventory in an effort to reduce the overall SKU (stock keeping unit) count on our website and to refine our product selection to categories that turn faster and have higher profitability. We believe that we can run our direct business with less inventory than we have had in the past, while filling in product selection using fulfillment partners, rather than acquiring the inventory directly. As a result of these efforts, we believe that we should see a significant improvement in direct and overall gross margins beginning in the first quarter of 2007. With reduced inventory levels, we now have excess warehouse capacity, and we are therefore making efforts to reduce warehouse space. We believe that we will see additional improvement to direct gross margins if and when we are able to successfully do this.

Questions
What were the gross margins specifically attributable to “direct revenue" that you “consciously and aggressively discounted” during the fourth quarter?

What were the gross margins specifically attributable to "direct revenue" unrelated to “consciously and aggressively” discounting of the “older inventory” referred to above?

Was Overstock.com’s belief about future improvements in gross margins for “direct revenue” based on gross margins achieved in the fourth quarter for such direct revenues that were unrelated to the “aggressive” discounting?

Can you disclose the effect on gross margins of “direct revenues” that was specifically attributed to Overstock.com’s reduction in inventory on its balance sheet from the 3rd quarter ended September 30, 2006 to the end of the last quarter of the fiscal year that ended of December 31, 2006?

Can you describe all the reasons why the allowance for “obsolescence or damaged inventory” rose significantly as a percentage of total inventories from September 30, 2006 to December 31, 2006?

What issues relating to inventory became apparent in the 4th quarter that was not apparent in the 3rd quarter?

Based on your statement in the 3rd quarter earnings transcript that I quoted above and the disclosures made in the recent 10 - Q and 10 – K, do you believe that Overstock.com took appropriate steps to properly value its inventory for the 3rd quarter ended September 30, 2006?

When you issued Overstock.com’s 10 – Q for the quarter ended September 30, 2006, did management properly determine the replacement cost or net realizable values of its inventory for that quarter in accordance with Generally Accepted Accounting Principles?

Was Overstock.com’s inventory amounts reported on its 10 – Q for the third quarter ended September 30, 2006, properly reported at the “lower of cost or market” under Generally Accepted Accounting Principles?

Do you believe that inventories for the 3rd quarter ended September 30, 2006 were reported in accordance with Generally Accepted Accounting Principles (GAAP)?

In hindsight, do you believe that the inventories reported on the balance sheet by Overstock.com in its financial statements for the third quarter ended September 30, 2006 were overstated?

Could the additional relative adjustments made to allowance for “obsolescence or damaged inventory” for the quarter ended December 31, 2006, been made for the quarter ended September 30, 2006?

Does Overstock.com use the most conservative accounting principles permitted to determine the valuation of inventory at the lower of cost or market?

Does Overstock.com have adequate internal controls in place to insure the proper recording of inventories and gross margins on its financial statements?

Did Overstock.com’s offering of 2,734,152 shares of common stock on December 15, 2006, have any influence on the company’s accounting for inventories and gross margins for the 3rd quarter ended September 30, 2006?

Can you describe in detail what effect the offering of common shares referred to above had on decisions relating to Overstock.com’s accounting for inventories and gross margins for the 3rd quarter ended September 30, 2006?

For example, assume that:

  • De-consolidation of variable interest annuity had no effect on gross margins
  • Almost all inventories on hand are for direct revenues
  • Gross margins on direct revenues unrelated to "aggressively discounting older inventory" is about 9.8% (same gross margin reported in 3rd quarter on direct revenues), net of fulfillment costs
  • Overstock.com’s normal gross margins on “direct revenues” is about 9.8% (based on 3rd quarter gross margins), net of fulfillment costs.
  • That the company during the 4th quarter maintained previous margins of about (9.8%, net of fulfillment costs) on “direct revenue” unrelated to “consciously and aggressively" discounting older inventory

Questions
Did Overstock.com lose about $7 million as a result of the company “consciously and aggressively” discounting older inventory “to significantly clean and reduce” its inventory?

If gross margins on “direct revenues” unrelated to efforts to “consciously and aggressively" discount older inventory was higher than 9.8%, would the company have lost even more money on the inventory it “consciously and aggressively discounted.”

If gross margins on “direct revenues” unrelated to efforts to “consciously and aggressively" discount older inventory was lower than 9.8%, would the company have lost less money on the older inventory it “consciously and aggressively discounted?”

However, in such a case that gross margins on “direct revenues” unrelated to efforts to “consciously and aggressively" discount older inventory was less than 9.8%, did Overstock.com make any disclosure as to a broader based decline in overall margins unrelated to “consciously and aggressively" discounting older inventory?”

Previous Disclosures
From an interview of you entitled “
Newsmaker: CEO in the Hot Seat” published by c/net news.com on March 6, 2006, I quote the following:

What are Overstock's problems right now, and when will the company be profitable?

Byrne:

I don't know. We have a plan this year that we should cross the billion-dollar mark. Put it this way: Amazon, at our stage, was losing $1.2 million a year in operations. It made up a phony accounting standard--pro forma. And when it reached pro forma breakeven, Wall Street set off fireworks.

When it reached EBITDA (earnings before interest, tax, depreciation and amortization) breakeven, Wall Street wanted to declare it a national holiday. I've never used pro forma in my life. We've had some GAAP (generally accepted accounting principles) profitable quarters, plenty of operating profit and EBITDA profitable quarters. This year, with a little luck, we should be an EBITDA-profitable year, so I'm kind of comfortable with that.


Questions
What were Overstock.com’s sales for the latest fiscal year?

Didn’t sales for the fiscal year ending December 31, 2006 end up at $798,150,000 as reported later on Overstock.com’s 10 – K for the fiscal year ended December 31, 2006?

Did Overstock.com achieve an “EBITDA-profitable year” for the latest fiscal year?

Isn’t it a fact that Overstock.com reported an “EBITDA loss” for the latest fiscal year?

Isn’t it true that Overstock.com lost about $101 million for the fiscal year ended December 31, 2006?

How would you compare your company’s application of accounting principles side by side with Amazon.com?

When you made the statement “We have a plan this year that we should cross the billion-dollar mark” were you attempting to hype Overstock.com in the eyes of the investment community?

Previous Disclosures
The Overstock.com
web site quotes you as follows:

In our filings we chose principles at the conservative edge of GAAP, but I will continue to present and discuss our results as I see them using the internal terms we have grown up with.

Question
Does the “conservative edge” you purported on Overstock.com’s web site, refer to accounting principles applied by the company relating to inventory valuations and disclosures in its financial statements?

Previous Disclosures
In the 3rd Quarter
earnings call transcript dated November 6, 2006, you stated:

Internally, I can tell you that we have always scaled this business for $1 billion, so that was our thought as to where we had to reach to at least make it a viable business, so this is distressing.

Later, during that same meeting, you said:

I think we started last year with fixed assets of $11 million, on which we were trying to do 800 to $1 billion.

Finally, later during that same meeting, you said:

Has slowing growth changed the economics of the business? Yes, it has. As we always, I am not even sure I have talked about this publicly, but we always thought of the $1 billion mark, charging to the $1 billion mark and that was the scale. Being stuck at the $800 million mark presents a problem.

However, in the 4th Quarter earnings call transcript dated February 5, 2007, you said:

First of all, the infrastructure, and the infrastructure is under control and is tuned and is beautiful, but we are not done. The expense structure is still -- we built the expense structure for a $2 billion company and we got stuck here. We have had to fix our expense structure and we are not finished with those fixes.

Questions
Can you explain the inconsistency of your representations as it relates to scaling the company?

Upcoming Overstock.com earnings conference call

Overstock.com has scheduled an earnings conference call at 11:00 AM (ET) on April 25, 2007. Perhaps a brave participant in the conference call will ask Patrick Byrne these questions?

Don’t count on such questions being asked.

Wall Street analysts are not known for asking tough questions. If they ask questions and push for unambiguous and truthful answers, they may not be able to participate in the next earnings conference call.

Maybe, Patrick Byrne or other members of Overstock.com management team attending the earnings conference call can answer them in a truthful, transparent, and unambiguous manner?

In an article entitled “Ignorance Isn’t Bliss for Execs on Trial” by Greg Farrell and Del Jones, USA TODAY published on March 15, 2005, Patrick Byrne was interviewed about playing dumb:

Chief executives who are mounting legal defenses should be wary of playing dumb, warns Patrick Byrne, CEO of Overstock.com. Such a posture could insult a jury, he says. Maybe that's their only choice, but "Ebbers would have been better to plea bargain to 15 years," rather than "tick jurors off ... with a provocative defense," Byrne says.

Well Patrick, here is an oppurtunity to be transparent and not play dumb.

I will post more questions for Patrick Byrne in a later post.

Written by,

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

For additional information on Overstock.com:

Gary Weiss - Search Overstock.com

O-Smear


Update on Overstock.com first quarter for fiscal year 2007 conference call

The Fraudfiles Blog: Today's Earnings Call for Overstock.com by Tracy Coenen

Gary Weiss Blog - Is Overstock.com's Quarterly Delusion 'Materially Misleading'? by Gary Weiss

Monday, April 16, 2007

The Deceptions of Patrick Byrne (CEO of Overstock.com) and Judd Bagley (Director of Social Media at Overstock.com)

Be careful about what you say and write

As a criminal I thought I could get away with lying under oath in many depositions conducted by the Securities and Exchange Commission and others who investigated the crimes at Crazy Eddie.

I lied with a straight face to the investigators under oath. I was determined to obstruct justice at every opportunity and to escape responsibility and accountability for my crimes. I simply did not care about the victims of my crimes and fought justice at every opportunity.

Had I not been caught by the government I would still be a criminal today.

I learned a very hard lesson from my experiences of lying under oath before I began my cooperation with the government and civil plaintiffs in early 1989. Be careful of what you say and represent to others, it may come back to haunt you.

Examining statements by Patrick Byrne and Judd Bagley about the smear web site antisocialmedia.net

During the last few months I have been examining the actions of Patrick Byrne (CEO of Overstock.com) and Judd Bagley (Director of Social Media at Overstock.com). In particular, I have followed their posting of messages on internet message boards.

Drawing on my experience from testifying as a criminal and later as a government witness I started posting “deposition style” questions addressed to Patrick Byrne, Judd Bagley and other message board posters who were collaborating with them.

Note:
I was eventually restricted from posting questions altogether on InvestorVillage.com for the following reason as written in a letter by the InvestorVillage.com administrator:

However, we are putting our foot down on the misuse of our OSTK board for your own agenda, which, for whatever reason, seems to include clogging our forum to conduct an informal and unofficial campaign of "deposition-style" messages targeting other members of InvestorVillage.


Link here to my previous blog post “Investor Village Et al Limits Sam E. Antar from Asking Questions on Overstock.com - Shame on Them!”

Until I was kicked off the Investor Village board (after Patrick Byrne expressed irritation at my questions), he and Judd Bagley would sometimes respond to the “deposition style” questions I asked them.

The responses that they provided to me and other message board posters such as the blogger known as Scipio Africanus
(O-Smear blog) indicated a troubling pattern of deception and maliciousness.

One area in particular that I became concerned about was the relationship between the smear web site antisocialmedia.net (initially run anonymously by Judd Bagley the Director of Social Media at Overstock.com) and Patrick Byrne and Overstock.com. Antisocialmedia.net is running a smear campaign against critics and persons examining the actions of Patrick Byrne, Judd Bagley, and Overstock.com on behalf of Patrick Byrne (CEO of Overstock.com).

Patrick Byrne denied involvement with antisocialmedia.net and once wrote:

“Overstock and I [meaning him] have precisely 0 to do with AntiSocialMedia.”

See my previous blog post “Don't Mess with Overstock.com CEO Patrick Byrne”

Another area of concern was deceptive representations by Patrick Byrne and Judd Bagley relating to the smear web site antisocialmedia.net.

Examine the time line according to Patrick Byrne’s comments

After Judd Bagley’s role with the web site antisocialmedia.net was revealed on January 2, 2007 by Roddy Boyd’s New York Post article
“Overstock.com Lashes Out at Critics on Web”, on January 31, 2007 in a post (message # 4287) on InvestorVillage.com under his alias Hannibal, Patrick Byrne made the following representation:

Oh yes: somewhere in there (after Judd was already working for us) I became aware of ASM. I asked him about it: he suggested that he had a right to expect a "Don't ask don't tell" policy regarding his research and writing. I pointed out to Judd that, if he were involved, he could not be doing anything on our company time, and that he must refrain from doing anything to discuss Overstock from and investment point of view. Only a month or two later, when it began to draw attention, did he confirm his involvement to me. All the questions about "Do you know this guy in Orem who knows this guy and do you fund this or that" are all non-starters. Overstock and I have precisely 0 to do with AntiSocialMedia.

Except for the fact that I am an avid reader and raving fan.

In the past, I did not know what was going to go up on ASM before it went up. However, I have sat with Judd and learned about all the ammo he has held in reserve. So I do know, now, what COULD go up, but not necessarily what WILL (or, in fact, if anything else will).

According to Patrick Byrne, when he became aware of antisocialmedia.net, he discussed the web site with Judd Bagley. By Byrne’s account, they decided on a “Don’t ask, don’t tell policy” to insulate Patrick Byrne from knowledge of Judd Bagley’s actions by reason of plausible deniability. As late as January 31, 2007, Byrne purports that "In the past, I did not know what was going to go up on ASM before it went up."

Before, Judd Bagley was revealed as being behind antisocialmedia.net, Patrick Byrne posted
(message # 2964) on InvestorVillage.com under his alias Hannibal on December 23, 2006 and represented the following:


2) I am not behind antisocialmedia.com, offer it no support, it has nothing to do with overstock. Technically, I do not "know" who out there is behind it (the person who is behind it has made an effort to shield me from that knowledge), though admittedly, I have a very good idea.

Patrick Byrne’s representation does not indicate that Judd Bagley had confirmed his involvement in antisocialmedia.net as of December 23, 2006. Therefore, according to Patrick Byrne the purported “Don’t ask, don’t tell” policy he had later described on January 31, 2007 was in effect on December 23, 2006.

According to Patrick Byrne’s posts on InvestorVillage.com, the latest possible date that Judd Bagley could have confirmed his involvement in the smear web site antisocialmedia.net with Patrick Byrne is on January 2, 2007. Roddy Boyd had exposed Judd Bagley’s involvement in antisocialmedia.net in his New York Post article entitled “Overstock.com Lashes Out at Critics on Web”.

Analyzing Patrick Byrne’s time line

According to Patrick Byrne, as of December 23, 2006, Judd Bagley had not yet confirmed to Patrick Byrne his involvement in antisocialmedia.net. Based on Patrick Byrne’s representations, the latest date that Judd Bagley could have confirmed his involvement in antisocialmedia.net to Patrick Byrne is January 2, 2007, when Roddy Boyd of the New York Post revealed Judd Bagley as the person behind antisocialmedia.net.

Patrick Byrne purports that the “Don’t ask, don’t tell” policy was discussed from one or two months prior to the conversation which he claims that Judd Bagley confirmed his involvement in antisocialmedia.net to him.

Therefore, based on Patrick Byrne’s comments, the earliest conversation he claims he could have discussed the “Don’t ask, don’t tell” policy with Judd Bagley was on October 23, 2006 and the latest date of his purported conversation was on November 2, 2006.

However, Patrick Byrne’s accounting of his time line is implausible. He knew about antisocialmedia.net in September 2006 and probably about Judd’s planned formation of it earlier.

In addition, posts by Judd Bagley on antisocialmedia.net in September 2006 indicate Patrick Byrne's prior knowledge of Bagley's posts on the web site.

Another time line based on Patrick Byrne’s and Judd Bagley’s comments

March 2006:
According to Judd Bagley, he begins his antisocialmedia.net “research” project.

On January 13, 2007 in a post (message # 3474) on InvestorVillage.com under the alias De Daumier-Smith Judd Bagley wrote:

AntiSocialMedia.net the mojo started in March of 2006 when I first became aware of you clowns and the honorless way you pay your alimony and rent at the trailercourt.

August 2006:
Judd Bagley is hired by Patrick Byrne as “Director of Social Media” at Overstock.com

September 8, 2006:
Judd Bagley anonymously registers the domain name antisocialmedia.net.

September 9, 2006:
Judd Bagley’s very first post on antisocialmedia.net is an anonymous vicious attack on well known investigative reporter, blogger, and vocal Byrne critic, Gary Weiss entitled “Gary Weiss: The Strawman Cometh.”

According to Patrick Byrne’s account, antisocialmedia.net drew his interest after its first post.

September 25, 2006:
Judd Bagley anonymously posts another commentary entitled “Veni, Viki, Wiki?” on the web site antisocialmedia.net.

Judd Bagley writes in his commentary:

"Please note that what follows is my recounting of a story very recently related to me by the subject, Patrick Byrne, with his permission. I invite Mr. Byrne to follow up with any corrections or clarifications that may be warranted. "

This post indicates that Patrick Byrne and Judd Bagley conversed about the content of antisocialmeda.net when he writes “recounting of a story very recently related to me by the subject, Patrick Byrne, with his permission.” In the following post on antisocialmeda.net, Judd receives an email from Byrne. Judd Bagley’s comments indicate that Byrne had prior knowledge of his posts on antisocialmeda.net.

Judd Bagley's post on antisocialmeda.net contradicts the comment (message # 4287) made by Patrick Byrne under his alias Hannibal, on InvestorVillage.com on January 31, 2007 (4 months later):

In the past, I did not know what was going to go up on ASM before it went up. However, I have sat with Judd and learned about all the ammo he has held in reserve. So I do know, now, what COULD go up, but not necessarily what WILL (or, in fact, if anything else will).

Judd Bagley's posts on antisocialmeda.net indicate that Patrick Byrne did have prior knowledge of the September 25 and September 28 posts on antisocialmedia.net.

September 28, 2006:
Judd Bagley anonymously posts a follow up commentary entitled “A Peek into the Mind of Wikipedia’s SlimVirgin” in which includes an email from Patrick Byrne.

EDITOR’S NOTE: As I feared, my recollection of Overstock.com CEO Patrick Byrne’s past experiences with Linda Mack (aka SlimVirgin) did not get it quite right.

Byrne recently emailed me a fuller, written version of the story which I intended to add as a comment on the original post; however, due to its length (and quality), I’ve opted instead to publish it here.

After reading Byrne’s account, all I can say is: my version really sucked and you owe it to yourself to read what follows, in its entirety.

Patrick Byrne’s email to Judd Bagley (posted on the antisocialmedia.net web site) is posted and signed “Humbly submitted, Patrick.”

In contrast to Judd Bagley’s September 25 post, the September 28 post purports to show an arms length relationship between Bagley and Byrne and conceals their personal and professional relationship.

In fact, Byrne and Bagley work in the same building. Judd Bagley deceptively conceals his employment relationship with Overstock.com and Patrick Byrne. Mr. Byrne later described Bagley as a “friend” relating to that time frame in a post on InvestorVillage.com. Apparently, Bagley tried to retract the accidental disclosure of his personal conversation with Byrne in his September 25 post with his September 28 post.

October 23, 2006 to December 2, 2006:
These are possible dates of Patrick Byrne’s purported “Don’t ask, don’t tell” policy conversation with Judd Bagley, according to Byrne’s post
(message # 4287) on InvestorVillage.com.

December 23, 2006:
Based in Patrick Byrne’s comments on InvestorVillage.com
(message # 2964), he does not claim that Judd Bagley had confirmed his involvement in antisocialmedia.net as of December 23, 2006.

January 2, 2007:
Roddy Boyd exposes Judd Bagley’s involvement in antisocialmedia.net in his New York Post article entitled
“Overstock.com Lashes Out at Critics on Web.”. This is the latest date according to Patrick Byrne's statements, that Judd Bagley could have confirmed his involvement in antisocialmedia.net

January 31, 2007
Patrick Byrne purports that Judd Bagley confirmed his involvement in antisocialmedia.net “Only a month or two later, when it began to draw attention…” in a post
(message # 4287) on InvestorVillage.com. Patrick Byrne claims that they discussed a "Don't ask, don't tell" policy after he became aware of antisocialmedia.net

Issues and questions relating to Patrick Byrne’s time line

On January 14, 2007 in another post (message # 3566) on InvestorVillage.com under the alias Hannibal, Patrick Byrne made the following disclosure:

“THE FIRST I EVER SPOKE WITH JUDD ABOUT ASM IS WHEN I WENT TO TELL HIM ABOUT THIS COOL NEW SITE I HAD FOUND. THAT IS THE SUM TOTAL OF MINE OR OVERSTOCK'S SUPPORT. WHILE I GRADUALLY CAME TO THINK JUDD WAS INVOLVED, HE NEVER ACTUALLY WOULD TELL ME THE TRUTH UNTIL RECENTLY.”

Note: Patrick Byrne’s response was written in capital letters.

According to Patrick Byrne’s account, he and Judd Bagley discussed the antisocialmedia.net web site around September 9, 2006, when Bagley posted a false and malicious smear attack against vocal critic Gary Weiss.

Patrick Byrne described a close personal relationship with Judd Bagley by calling him a “friend” on InvestorVillage.com (message # 2964) under his alias Hannibal while denying that it was the reason why he was hired:

I know Judd. He has become a friend in recent months, but that is not why we hired him.

Patrick Byrne’s disdain for Gary Weiss is well known. He has posted threats on InvestorVillage.com and has made several defamatory comments about him.

Aside from the other people smeared on antisocialmedia.net, Patrick Byrne and Judd Bagley share a common and especially vile hatred towards Gary Weiss. In a post (message # 6276) on InvestorVillage.com Judd Bagley under the alias De Daumier-Smith wrote:

No...Weiss is evil. I'll stand by that. More than evil, he's soul-less evil.

Judd Bagley’s comments are indicative of the vile hatred he and Byrne share of Gary Weiss and the malice they have directed against him

In various posts on InvestorVillage.com, Patrick Byrne taunted Gary Weiss and others about the future content of antisocialmedia.net.

For example, after a previous smear commentary on antisocialmedia.net was published against Gary Weiss, on November 26, 2006 Patrick Byrne wrote the following post (message # 2426) on InvestorVillage.com under his alias Hannibal:

I hear that GW is melting down, melting down, melting down.....

On December 23, 2006, Patrick Byrne wrote the following post (message # 2976) on InvestorVillage.com under his alias Hannibal:

This antisocialmedia site seems to have Gary’s knickers in a twist. So for the record:

1) Overstock has no resources supporting antisocialmeda.com. It is someone’s hobby.


Some of Patrick Byrne’s posts on InvestorVillage.com provided links to antisocialmedia.net and others showed his full support for Judd Bagley. In his post (message # 4287) on InvestorVillage.com on January 31, 2007, under his alias Hannibal Patrick Byrne wrote:

"...I am an avid reader and a raving fan."

On November 26, 2006, in a post (message # 2426) on InvestorVillage.com, under the alias Hannibal, Patrick Byrne urged fellow message board participants to read antisocialmedia.net's latest smear:

For those who have not seen it, I suggest reading this.

...www.antisocialmedia.net/

Overstock.com's web site links to antisocialmeda.net. Patrick Byrne uses a smear article on Gary Weiss in antisocialmedia.net to attack him on Overstock.com's web site:

Unfortunately for Gary, he appears to have a relationship with the DTCC, that corporation at the heart of the scandal (http://antisocialmedia.net/pmwiki/pmwiki.php?

It is very possible he knew about Judd Bagley’s plan to launch antisocialmedia.net previous to Bagley’s August 2006 hiring at Overstock.com.

On January 13, 2007, he wrote the following comment about Judd Bagley’s hiring at Overstock.com in August 2006 in a post (message # 4287) on InvestorVillage.com under his alias Hannibal:

Then he spent about 9 months selling his company, and working for the new owner, but taking as his hobby a kind of cat-a-mouse game with Gary and his minions, all over the Internet. These Tools of Satan left IP footprints all over Wikipedia and Yahoo and other places that Judd was able to unscramble and connect. He built an enourmous map of their connections. It turns out that some of them trace back to a woman in my distant past (see wikipediareview.com for details). All of this was done on his own, and while we had occasional conversations about it, I doubt if, in all those months, we met more than a few times, or spoke more than a dozen or two dozen times.

In the process of all of this, he became quite astute about Web 2.0 and the way some had learned to hijack the discourse. In August he approached me about developing an alternative. I agreed, and he joined Overstock.

Note: I added the italics for emphasis

The above comment by Patrick Byrne indicates his prior knowledge as to the planned formation of antisocialmedia.net.

Patrick Byrne’s explanation of his hiring Judd Bagley is discussed in a post (message # 3451) on InvestorVillage.com by him, under his alias Hannibal:

In the 2.0 paradigm (which is to say, mine and Judd's) it looks like this: an unhealthy alliance has emerged among certain hedge funds, corporate media, and the corporate media's hedge-fund-shills (who call themselves "reporters")…. These guys are so arrogant and stupid they cannot yet grasp that they are the targets of an investigation by honest journalists (that would be the rest of us), we are exposing them, and they are twisting around in shrill complaint like the corporate flacks they are.

That 2.0 paradigm just has not sunk in: they are not journalists, they are the evil corporations, and we citizens are the journalists. "DOES NOT COMPUTE" for Gary, Seth, etc. One of the most interesting things I have ever seen is watching how these shill-journalists react as the tables get slowly turned on them.

In the same post above (message # 3451) on InvestorVillage.com by Patrick Byrne under his alias Hannibal he writes:

PS By the way, for the record once again, ASM receives support from neither myself nor Overstock, and was started, I believe, before Judd joined Overstock.

Prior to that post by Patrick Byrne there was no explicit indication that Judd Bagley had started his antisocialmedia.net research prior to the web site’s inception on September 8, 2006.

Judd Bagley quickly responded with damage control in a post (message # 3474) on InvestorVillage.com, under his alias De Daumier-Smith:

Because the initial posts to ASM the website were based on mojo that was months old, Patrick probably assumed the site had been around that long. That he's unclear on the actual date doesn't surprise me because I never felt any reason to tell him about it -- neither its launch nor subsequent posts.

In this post Judd Bagley purports that he “…I never felt any reason to tell him about it [antisocialmedia.net] -- neither its launch nor subsequent posts.” However, Patrick Byrne’s own representations in various posts and Judd Bagley’s own posts on antisocialmedia.net completely contradict this deceptive statement.

Judd Bagley comments on antisocialmedia.net indicate that he personally spoke to Patrick Byrne to obtain his input for the September 25, 2006 post entitled “Veni, Viki, Wiki?” In addition they show their close personal relationship as friends. His comments on antisocialmedia.net indicate Byrne’s knowledge of the web site and complicity with it previous to September 25, 2006. He later purportedly obtains an email from Byrne for his September 28, 2006 post entitled “A Peek into the Mind of Wikipedia’s SlimVirgin.” In addition they indicate Byrne’s prior knowledge of posts to be made on antisocialmedia.net by Bagley.

Was Patrick Byrne deceptive about his knowledge of Judd Bagley’s actions relating to antisocialmedia.net?

It appears that Patrick Byrne was being deceptive when he wrote on January 31, 2007 (after it was revealed by Roddy Boyd in the New York Post that Judd Bagley was behind the previously anonymous we site antisocialmeda.net):

“…somewhere in there (after Judd was already working for us) I became aware of ASM. I asked him about it: he suggested that he had a right to expect a ‘Don't ask don't tell’ policy regarding his research and writing. I pointed out to Judd that, if he were involved, he could not be doing anything on our company time, and that he must refrain from doing anything to discuss Overstock from and investment point of view. Only a month or two later, when it began to draw attention, did he confirm his involvement to me…. Overstock and I have precisely 0 to do with AntiSocialMedia.”

In addition in his post on December 23, 2006 (before Roddy Boyd’s New York Post article revealing Judd Bagley’s involvement with antisocialmedia.net) he wrote:

Technically, I do not "know" who out there is behind it (the person who is behind it has made an effort to shield me from that knowledge), though admittedly, I have a very good idea.

Based on a time line from Patrick Byrne’s posts on InvestorVillage.com, he represents that in effect his first purported conversation relating to the “Don’t ask, don’t tell policy was around October 23, 2006 to December 2, 2006. According to Patrick Byrne’s account, since Judd Bagley had not confirmed his involvement in antisocialmedia.net to him as of December 23, 2006. The purported “Don’t ask, don’t tell” conversation between them based on Byrne’s account would have taken place a minimum of six weeks and possibly as much as almost three months after Byrne claims antisocialmedia.net came to his attention during September 2006.

Based on Patrick Byrne’s representations about his first discussion of the “Don’t ask, don’t tell” policy conversation with Judd Bagley it is improbable that such a conversation was discussed at such a late date if such conversation and policy ever existed at all.

Patrick Byrne had already read antisocialmedia.net in September 2006 and possibly had advance knowledge of its formation. Patrick Byrne purported that he discussed with Judd Bagley the “COOL NEW WEB SITE” he had found during September 2006. Judd Bagley discloses his discussions with Patrick Byrne about the content of two posts published on antisocialmedia.net in September 2006. Judd Bagley's discussions with Patrick Byrne as posted on antisocialmedia.net show that Byrne apparently had advance knowledge of posts on antisocialmedia.net despite such denials by him. Patrick Byrne describes a close personal relationship with Judd Bagley by referring to him a as a “friend.”

Therefore, the more plausible time line is that Patrick Byrne hired Judd Bagley in August 2006 to conduct counter critics of Overstock.com and his activities. He needed to distance himself from Judd Bagley’s smear campaign and he retroactively created a “Don’t ask, don’t tell” policy as an excuse for his plausible denial relating to Judd Bagley’s activities. He calls Judd Bagley’s activities a “hobby.” Patrick Byrne purportedly lets Judd Bagley set his own hours at Overstock.com (see previous blog post “Don't Mess with Overstock.com CEO Patrick Byrne”) so he can pursue his critics. Therefore, Judd Bagley can freely pursue his smear campaign on his own time including normal week day office hours at Overstock.com. Patrick Byrne now has his deceitful rational basis for his following statement:

“I am not behind antisocialmedia.com, offer it no support, it has nothing to do with overstock. Technically, I do not "know" who out there is behind it (the person who is behind it has made an effort to shield me from that knowledge), though admittedly, I have a very good idea. ”

Perhaps Patrick Byrne and Judd Bagley will some day be subpoenaed (if not already) to testify under oath in a deposition to the Securities and Exchange Commission relating to its investigation of Overstock.com. Maybe at that time Byrne and Bagley can provide a clear, truthful, and unambiguous account of their actions.

Judd Bagley's deception

It appears that Judd Bagley and Patrick Byrne have not adequately coordinated their stories.

Judd Bagley was deceptive about his communications with Patrick Byrne relating to antisocialmedia.net. On January 13, 2007, in a post (message # 3474) on InvestorVillage.com under his alias De Daumier-Smith, Judd Bagley wrote:

Because the initial posts to ASM the website were based on mojo that was months old, Patrick probably assumed the site had been around that long. That he's unclear on the actual date doesn't surprise me because I never felt any reason to tell him about it -- neither its launch nor subsequent posts.

I still don't see any reason to talk to him about the site.

As late as January 13, 2007, Judd Bagley expected people to believe he had not discussed antisocialmedia.net with Patrick Byrne despite Byrne’s own posts purporting such conversations on InvestorVillage.com and Judd Bagley’s comments on antisocialmedia.net about his discussions with Byrne.

In addition, that very same day on InvestorVillage.com Patrick Byrne posted (message # 3451) the following threat to Gary Weiss under his alias Hannibal:

But from what I know, I suspect that the largest blows to Gary are still to come. You ain't seen nothing."

My advice to Patrick Byrne from a person who has “been there, done that”

I learned long ago that when you can no longer spin, shut up. I sent that advice several times to Patrick Byrne and Judd Bagley through my posts on blogs and internet message boards. Evidently, they just cannot shut up.

Therefore, I offer the following advice from a convicted felon to Patrick Byrne:
Don’t lie under oath if you cannot tell the truth. Exercise your constitutional right against self incrimination if you have anything to hide. If you lie and get caught, you may not get as lucky as me and avoid a long prison sentence. After all, if you and others working in concert with you have committed any crimes, remember that you Mr. Byrne are the “big fish.”

My advice to Judd Bagley:
Patrick Byrne is the “big fish.” You are not far behind Byrne in status. I almost waited too long covering up the activities of Eddie Antar another “big fish.” I advise you to seek responsible legal counsel.

Being held accountable for what you say and write

Judd Bagley recently wrote in the following post (message # 6719) on InvestorVillage.com under his alias De Daumier-Smith:

I simply feel very strongly about people being held accountable for their words.

My guess is that both Patrick Byrne and Judd Bagley will ultimately be held responsible for their words too, as the Securities and Exchange Commission investigation into Overstock.com continues. Other government law enforcement entities may soon follow.

Note: See Update Below

For additional information about Patrick Byrne and Judd Bagley see the following blogs:

Gary Weiss –
Posts about Judd Bagley

O-Smear - This blog details Patrick Byrne's and Judd Bagley's actions

O-Smear - Timeline

DealBreaker - Posts about Overstock.com

New York Times (subscription required) - Overstock's Campaign of Menace by Joe Nocera

Written by:

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

Update:

Update: After the above blog post, Judd Bagley (Director of Social Media at Overstock.com) changed the purported site description for antisocialmedia.net.

Previous Purported Site Description

About AntiSocialMedia.net

The unique strength of social media (another term for peer-generated, web-distributed content) is also its unique weakness: the fact that anybody can get involved.

Our mandate is broad but our scope, as you’ll read, is less so: focusing primarily on the use of social media as a tool in support of illegal stock manipulation efforts. The principal editor of this website is employed by one of the many companies mentioned in these pages, but is not a shareholder and receives no support whatsoever from his employer.

Please use the comment feature or email to submit tips or additional information.

Current Purported Site Description

ABOUT ANTISOCIALMEDIA.NET

AntiSocialMedia.net seeks to hold accountable those who abuse social media for personal gain, particularly when used as a means of spreading disinformation by stock market manipulators.

Judd Bagley, a former journalist and the primary contributor to AntiSocialMedia.net, has made a hobby of investigating what calls “user-generated discontent” since December of 2005.

In August of 2006, Judd was hired by Overstock.com in a marketing capacity, and continues his investigating on his own time, without support from his employer. Overstock happens to be one of the companies Judd alleges is targeted by these manipulators (in fact, that intersection of facts brought Judd into contact with Overstock.com).

Overstock.com has specifically requested that Judd stipulate that Overstock.com disclaims responsibility for the content on this site, and that nobody other than Judd has knowledge of what he is researching or writing before it is published here.