Monday, September 26, 2005

“Dismissed for Violations”


Well now we know where Patrick got his affidavits.

The affidavits I'm referring to are the documents Overstock.com CEO Patrick Byrne brandished Joe McCarthy-like during his “Sith Lord” appearance CNBC, claiming proof of a conspiracy between short-sellers and a research firm called Gradient Analytics before reading selective bits from the so-called proof of the so-called conspiracy.

According to today’s New York Post, of the three ex-employees at Gradient who apparently provided the affidavits, two were “dismissed for violations of Gradient’s corporate policy.”

Furthermore, the two worked in “customer-relationship management” at Gradient—which is not exactly the guts of a research shop, where conspiracies of the scale alleged by Byrne might be hatched.

And one of the two “customer-relationship” ex-employees was, according to the Post, fired for “forwarding Gradient’s client list to his personal e-mail account,” and has “filed and lost repeated appeals to claim unemployment benefits.”

Not exactly an Andy Fastow-type eye-witness, if you ask me.

Now that I think of it, when Patrick read from his “Sith Lord” papers on CNBC (I don't know about you, but I kept waiting for him to say he had in his hand the names of 57 communists now working in the State Department), the phrase that jumped out was the qualifier “it appeared,” which was placed before an allegation of conspiracy between the shorts, Gradient and reporter Herb Greenberg.

There was no first-person “and then I did this” eye-witness account from somebody at the epicenter of the so-called conspiracy—the kind of testimony that put Bernie Ebbers in jail. At least as far as I could tell. And today's article explains why.

Stay tuned, and read the Post.


Jeff Matthews
I Am Not Making This Up



© 2005 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

22 comments:

Its_strange said...

You know I thought this guy with a doctorate in philosophy from Stanford was acting like Joe McCarthy myself . Stanford should be ashamed.

Its_strange said...

Hey Patrick , Don Adams , the guy who played Maxwell Smart from "Get Smart" , died . What a shame. I enjoyed the show and i bet he could have found the Sith Lord .

Anonymous said...

Just because the people making the claims have motives for making their claims doesn't mean that it's not true. I wouldn't be surprised to find out that Rocker likes to disseminate his stories that support his investment thesis once he's built a position. Many fast-money guys operate that way (JLF holla atchya boy!).
Interestingly, I know people who do really good proprietary research that Rocker refuses to buy. In fact, he was more interested in pitching his "Overstock Diamond Fiasco" story to the researcher. So, the story of Rocker providing "editing guidance" doesn't sound too far-fetched to me. I'd think that as long as Rocker's guidance was based on facts, he shouldn't have much to worry about.
Patrick's relentlessness on this issue is somewhat disturbing and he certainly has outstanding questions regarding his behavior as a public official as well. I just think we have a case of two motivated parties with different perspectives.
Regardless, it's interesting to follow the drama! Keep finding the sordid tales -- very interesting reading.

padawancowboy said...

Wow, Jeff. This blog has really gone downhill. Since when are Roddy Boyd and the NY Post trusted sources? And have you honestly stooped to labelling people as "McCarthy-like"?

I am a loyal reader and fan, but this has gone too far. Yellow journalism does not become you.

Anyone who has worked on Wall Street knows that this stuff goes on all the time. I haven't read the affidavits, but if true, then it would only make sense that the guilty parties would respond in this way: by smearing the reputations of the whistle-blowers. By spreading that angle you become complicit in the crime, unwitting or not. And isn't it odd that you posted shortly after the Post story ran...

So grow up, Jeff. Stick to what you know and do best. If the allegations in the suit turn out to be correct, then you can only be hurt by your public and highly personal spat with Byrne.

bsilly0 said...

We mockingly hear references to (and from) Sith Lords daily. Lots of effort going into discrediting Mr. Byrne, his associates, his naked shorting theories, etc. It's all great fun. It's clear Byrne went a little far.

But there's little discussion of the meat of the lawsuit against Rocker.

So is it true?

If Rocker didn't do it, then he should be able to respond in court & Byrne dug his own hole.

Call me cynical, call me conspiracy minded, but it ain't that hard to imagine that it could be true. Either way, proving it is another matter. Anyone care to handicap the odds here?

If Rocker did it, is it wrong? If it's common, does the industry need to change?

b.

Harvard Homeboy said...

Comparisons between Joe McCarthy and Patrick Byrne are inappropriate except in the sense that they've both exhibited behavior that could be fairly characterized as that of paranoid, delusional, wacko nut cases.

The problem with Byrne is that he's trained as a philosopher. So he likes to sit around ruminating about Aristotilian syllogisms and stuff instead of worrying about more mundane matters like, say, inventory turns.

Have the exhibits in the case in California been made public yet? If so, I'd like to get a copy of the Gradient research report from the court.

UrsaMajor245 said...

Stanford will be taught its lesson in humility on November 5th.

As far as Patick goes, it's no longer just the NY Post who finds this situation most amusing. Let's hope he can find himself a copy of today's WSJ to read.

Its_strange said...

I think this is a great story and one the public should be forced to read and follow before opening a brokerage account. The trouble is these things take so long to resolve . Even after Eron and the like the system still stinks . My gut tells me its all about the squeeze . I read Herb Greenberg so i have followed LHSP and CNC and AREM ...i don't think Rocker acts foolishly and without the facts. Now if you go back and review the conference call where Rocker called in you will see Patrick STILL hasn't answered one of his questions.

gvtucker said...

I keep going back to one important thing about the lawsuit. Nowhere in the complaint, nowhere, is it alleged that anything Rocker or Gradient said is untrue.

If everything that Rocker or Gradient said was true, then there was nothing wrong with what they were doing, just as there would be nothing wrong with any of the OSTK longs making a public statement about what they perceive are the positives to the OSTK story.

settlements said...

But it is all a myth!

September 8, 2005



Dear Mr. Patch,

Although REG SHO is a solid first step in eliminating certain abusive practices, a significant number of issues remain with respect to naked short selling. As you know, the emphasis of REG SHO is, by and large, the “threshold” stocks traded on the NYSE and the NASDAQ. It appears that the SRO's have begun to pay attention to naked short selling now that it has become an SEC rule. Nevertheless, it seems clear that had the SRO's and the SEC exercised greater diligence in enforcing pre-existing rules, REG SHO would likely have been unnecessary.

The most egregious abuses pertaining to naked shorting are occurring on the bulletin board and pink sheets. This fact is particularly troubling because REG SHO fails to address or provide any meaningful reform in these marketplaces. I believe this failure is due, in large part, to the lack of resources committed to these markets and the resultant lack of transparency.

Regulators must devise and implement solutions that will offer the maximum effect without hindrance to the legitimate financial marketplace. REG SHO, once enhanced, should have such an effect. However, there remains a substantial distance between REG SHO and the ultimate goal of including substantive protections for small business issuers.

It is these small businesses in our communities who take entrepreneurial risks to grow their companies through listings on the OTCBB and Pink Sheets. These small businesses not only provide employment for the residents of their communities, but also offer the general public the opportunity to invest in local businesses with promising products or services.

While it may be true that a number of small companies lack the financial depth to succeed, they are nonetheless entitled to succeed or fail by their own honest business decisions and not as a result of the corrupt acts of abusive short sellers.

Without transparency, we cannot, as yet, precisely identify each small business that failed as a direct result of abusive naked short selling nor quantify the exact number of jobs lost to our local economies when these companies are forced to close their doors. However, we can say to a certainty that the impact on many of our local communities has been injurious. As a result, we have observed an unmistakable loss of investor confidence by the arguably millions of investors who have lost their monies.

Members of Congress are confronted with a myriad of constituent concerns, many of which may, at first blush, appear to have a more direct affect on constituents than the problem of abusive naked short selling. In fact, abusive short selling poses a direct threat to the economic well being of small business and the entire community.

Congressional legislators want and, by necessity, must have the utmost confidence in governmental agencies’ capacity to carry out their legislative mandates. The SEC is moving slowly forward as REG SHO in its current state is studied and debated seemingly ad infinitum. While slight modifications to the existing Rule may result from such an approach, a far more threatening pattern of abuse is certain to continue unless wholesale reforms are made to remedy the concerns of the small business community. Without further substantive reform to REG SHO, many more small companies in our communities will succumb to failure - not through the mechanism of the marketplace but at the hands of manipulators.

The fact that you, along with an ever-growing group of concerned citizens, have continued to champion the issue of reform in the naked short selling area for so long is the primary reason we are beginning to see reform of any sort. I would caution people not to assume that because reform has begun that the issue of abusive short selling will soon become a thing of the past. Without both a concerted effort to inform and educate those in power on what issues remain and a commitment to implement real, workable solutions we are unlikely to see any meaningful reform.

Your determination and persistence in seeing that this wrong is righted is in part responsible for my interest, as well as that of other state regulators. We have established a working project group in this area and have been meeting with SRO's and issuers alike. We will continue to exert substantial effort to remedy the remaining abusive practices in naked short selling until we are confident at the state level that the companies in our communities and citizens that invest in them will no longer be the possible targets of abusive naked short sellers.

Sincerely,



Ralph A. Lambiase
NASAA Past-President and
Director, Connecticut Division of Securities

settlements said...

Jeff...Why is it that you continue to spend more time obsessed over the "Sith Lord" than Byrne has?

If I am not mistaken, you have continued in this direction far beyond the single public communication Byrne had on the subject matter. Maybe it is you who are paranoid.

With over 16,000 publicly traded companies, and an entire gammit of CEO personalities, you would have thought by now you would have moved on but apparently not. Are you obsessed? Are you using this blog for personal profiteering by continuing to keep the story alive and to use for your financial stake in the company stock moving down?

I just find it amusing how much time you and Herbie, and Mark Cuban focus so intently on a single company. I hear Frist is bing looked at for insider trading - does that mean anything or do you only speak on stocks you have self-interest in?

credibility said...

Just reveiwed some OSTK financial and wanted to share a couple
statistics with you:
trailing 12 months ending 6/30/05
negative free cash flow of $40,223,000.00.
that's down from comparable period 6/30/04 of negative $4,473,000.00

that's -799.2 % decline period over period.

Jeff Matthews said...

"I hear Frist is bing looked at for insider trading - does that mean anything or do you only speak on stocks you have self-interest in?"

This is incoherent, and while I thank you for posting, please keep comments relevant, otherwise you can post rants on Yahoo message boards. In the future these will be deleted.

credibility said...

I cut and pasted this from Businessweek....April 26,2005
The statement below is an answer that BOB OLSTEIN gave in an interveiw regarding Corporate financials and what he looks at when he is investing:


The most important number you should look at is free cash flow, which is earnings plus depreciation, minus capital expenditures, plus or minus working capital needs. Basically, the most critical thing is comparing free cash flow......

credibility said...
This comment has been removed by a blog administrator.
credibility said...
This comment has been removed by a blog administrator.
credibility said...
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Its_strange said...

Why hasn't Patrick gone on TV and challenged Gradients research report point by point ? Would that benefit the stockholders more than chasing a Sith Lord and suing people and wondering how much Gradient's fee is ? Or why hasn't Patrick held a conference call to challenge the Gradient report..He could use slides and the hole works ....i guess i'm just to dumb for this

btw..has anyone read the Gradient report ?

Its_strange said...

anonymous...i would love to hear just exactly what this " overstock diamond fiasco " is.

Its_strange said...

I don't get it..Doesn't even the Surpreme Court discuss its work before offering a written report ? Why can't Rocker express a view or idea with Gradient. Hell, he is well known investment pro. And whats the beef with what Rocker pays for Gradients work ? The company i work for charges different people, different prices for the same item . We wholesale and retail. We often have sales . Ford and GM do the same. You get the right saleman and he will give you a better deal than others. ...This looks like O'Quinn and Patrick know perfectly well Rocker ain't naked shorting so they dreamed this stuff up....

gvtucker said...

It's pretty comical, really. Byrne and the gang whine incessantly about naked shorting, they create this conspiracy that is centered around naked shorting, and then in their lawsuit they file there's nothing at all about naked shorting, nothing that alleges that any of the research produced by Gradient is false in any way.

They're all hat and no cattle. Gradient and Rocker ought to make then take this lawsuit as far as it can go, then file to make the plaintiffs pay for their attorneys' fees for filing a frivolous lawsuit.

Harvard Homeboy said...

<< Why hasn't Patrick gone on TV and challenged Gradients research report point by point ? >>


And do what?

Talk about mud pies and cream pies? Talk about how, when he was a kid, he used to sell Christmas trees with his brother and how they reconciled the cigar box every day and it worked just fine then and by gosh it'll work just fine now, too?

Fact is, Byrne is completely out of his element. And that's just one of his problems. Another is that he's surrounded himself with sycophants like Stormy Simon and Shawn Schwegman -- people with limited management experience and of marginal competence who are there to tell Byrne how bright he is and that he's on the right track when, in fact, the guy's completely clueless.

I went to the Stanford website and found an article by Byrne on Aristotle, logic and syllogisms. I found another in the Library of Congress by Byrne about the Chinese philosopher Lao Tsi.

This guy is sitting around ruminating about Sith Lords and yin and yang when he ought to be thinking real hard about the inventory writedowns they're gonna be taking real soon.

I can just imagine a conversation between Byrne and his CFO ....

BYRNE: We need to get our credits up and keep our debits under control.

CFO: Mr. Byrne, "debit" from an accounting standpoint means one thing and one thing only -- the left hand side of the t-account.

BYRNE: It does?

CFO: Yes sir. If you want to increase cash, you debit cash.

BYRNE: You do?

CFO: Yes sir.

BYRNE: I wrote a paper once on Lao Tsi, the Chinese philosopher. Have you ever heard of him?

CFO: No sir, I haven't.

BYRNE: Well, Lao Tsi once said ... blah, blah, blah.

This company is going to need to have a special line item in its income statement called "Recurring Non-recurring charges" pretty soon for its inventory writedowns.

And since I'm short this piece of garbage, I can't wait.