Patrick Byrne Told You So

Are the recent fireworks over Lehman Brothers, and Bear Stearns before it, just another example of bear raids by gangs of manipulative short sellers?

Patrick Byrne, the colorful (ahem) CEO of Overstock.com has long asserted that is indeed the case, and was vocal enough to draw his own SEC inquiry. But he never lost any sleep over it, and a nearly two year investigation into the company has been dropped by the SEC.  Yes, Patrick is off the hook:

Byrne produced a letter, written Wednesday by Kenneth Israel Jr., director of the SEC’s regional office in Salt Lake City, saying the federal agency’s probe “has been completed as to Overstock.com, against whom we do not intend to recommend any enforcement action.” A second letter said that no enforcement action is contemplated against company officers and directors.

“As soon as it started,” Byrne said, “I told [SEC investigators] ‘You guys are going to waste a lot of time and money and find nothing.’ They spent two years probing - they were fair and judicious - and at the end they came to exactly the conclusion I predicted when I started my campaign to expose corruption on Wall Street and to prevent the kind of systemic meltdown that is exactly what we’re experiencing in slow motion now.” Salt Lake Tribune

Byrne’s conciliatory words to the SEC might not extend to short sellers. Although many members of the investment community consider Byrne to be a kook, he is only getting started. Will he find any sympathy from ex-Bear Stearns employees as he takes his battle to the next phase?

With the SEC letter now in hand, Byrne said he plans to keep fighting corruption on Wall Street, the kind of illicit stock manipulation that he claims has traumatized big financiers such as Bear Stearns and Lehman Brothers.

“The whole intellectual battle has turned,” he said. “The same people who three years ago were saying I’m nuts have changed their tunes. Everybody gets that what I’ve been saying is going on is going on.”

I have some sympathy for Byrne on the issue of naked shorts, and there are always pockets of abuse that need to be cleaned up. But he will have some trouble building any support for his crusade until he tones down his act, which might not be his style.  Hopefully Patrick does not neglect his day job going forward; the shareholders of Overstock.com have been shortchanged from the many demands on Byrne’s time.

The stock is getting little sponsorship on Wall Street; most mutual fund managers simply cannot defend having this stock on their sheets, and outside on a few small-cap index funds, Fairfax Financial and Chou Associates, the stock is indeed getting the cold shoulder from the BuySide.

But low hanging fruit, in the form of multiple expansion, is not out of the question if Patrick remain’s on his best behavior.

Congratulations on your victory Patrick, but it would seem to be a bit pyrrhic from where I sit. Your long suffering shareholders deserve better, tough retail climate or not. I hope you can deliver the goods, in the form of rising margins and profits, and finish this race stronger than Big Brown.

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Patrick Byrne spent his formative years with an eccentric guy from Omaha hanging around his house.  Warren Buffett might know him well, do you?

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Overstock.com probe ends; CEO feels vindicated
Salt Lake Tribune
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Positions

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