Friday, August 12, 2005

Overstock, The Den Of Thieves, and the Master Mind

The names articulated in the schematic Dr. Byrne presented are incredible, a veritable who’s who of the hedge fund world and Wall Street:

David Rocker. Leon Black. Tom Barton. Marc Cohodes. David Einhorn. Jim Cramer. Kroll. Barron's. The WSJ.

And at the bottom of it all, a Master Mind. Some on the Yahoo boards have a speculation, which seems credible to me. Check out this post. If true, this is the guy who was a poster boy for corporate raiding and stock manipulation, who's spent much energy and money to present a benign and innocent façade since he was released from Federal prison.

The name wasn’t mentioned, but the initials seem like a good clue. Master Mind. Famous 80’s securities criminal, back in business, unbeknownst to the SEC. MM.

It all starts to make sense. In today’s Overstock.com conference call, Dr. Patrick Byrne laid out a master plan of manipulation that is staggering in the comprehensive way that it covers all the bases – media, regulatory, hedge fund, financial – and which is the single most complete coordinated conspiracy I have ever heard of. It actually makes a lot of sense once you think through the connections, and read some history about the likely MM, rather than the puff piece propaganda generated that frames him as a victim of the bad old anti-Wall Street government. The guy I’m thinking of was involved in a stock manipulation scheme the likes of which had never been seen before, and he got put away for it. While he was in jail, he was allegedly teaching an MBA level course to other inmates on how to game the system (this from an insider and former regulator who was involved in shutting it down). Once out, he spent considerable time and money sculpting a front as a philanthropic hero, misunderstood, brilliant and persecuted. I’m guessing that this is who Byrne was thinking of.

Many don't remember, but Giulliani took him down. The same Giulliani that is a partner at one of Dr. Byrne's attorney firms. When you look at what Giulliani put him away for, it was being a master stock manipulator. A guy who stole money from shareholders by systematically breaking the law. Not too glamorous or noble. If it is him, the SEC and the DOJ needs to get on this now, contact Byrne and the legal team and see what evidence they have.

Here we have again, laid out in living color, a master-planned stock manipulation scheme that involves the theft of billions and billions from American shareholders, according to Dr. Byrne. Old habits die hard, and when you are used to being the smartest guy in the room, the guy for whom none of the rules apply, it has to be tough. It also shows that if it is him, he learned nothing from his stay in Club Fed, other than how to cover his tracks better.

The Call Blow by Blow

What can be said that Dr. Byrne didn’t say in his conference call? Let’s recap.

First and foremost, about 100% of the total outstanding shares of OSTK are held by insiders, and strong institutions that aren’t trading. Which inevitably points to massive counterfeiting of the company’s shares, as it trades between 500K to 1.5 million shares on any given day – and none of the actual owners are trading. So that begs the question how are an estimated 10 million or so shares (counting FTDs) going to cover when only 100K or so shares are actually in the float? And who allowed this wholesale counterfeiting to get this far? This is not some OTCBB stock selling shares out the back door – it is a billion dollar market cap company on the NASDAQ, that regulators and the exchange are supposed to be protecting – in other words, this isn’t supposed to happen. So how did it?

Dr. Byrne introduces the cognitive disconnect with one of his first slides, wherein he shows the huge disparity between the number of transactions the exchanges report, and what the brokers report - often more than a 100% disconnect, for long stretches. He postulates that this is the infamous "ex-clearing" gimmick at work, wherein larger brokers keep a separate set of books to document trades with no delivery, and swap those IOU's back and forth between brokerages, removing them from the prying eyes of the regulators, and enabling easy churning between related accounts. That seems plausible given the fact that for 99.99999% of all companies, the two metrics are in lockstep. OSTK is different. Lucky them. Coincidence? Not likely.

But that is just the preamble. The meat is an expose of a stock manipulation scheme involving some of the biggest names on Wall Street. According to Dr. Byrne, the assault on a number of companies by the same network of hedge funds, using the same techniques, is part of a coordinated engine of corporate destruction being perpetrated using all of the tactics I described in the Q4 OSTK CC, and then some. Its tentacles intrude into the media via an intricate network of interpenetrated relationships, into politics, into corporate espionage, into the DOJ and the SEC by powerful and rich men accustomed to swaying the rules in their favor. The driving force is a network of hedge funds structured and beneficially owned by a “Billionaire financier” who was unnamed (but Byrne said he could name him, or rather declared “I Can”), and directed by a Master Mind who was a famous uber-market criminal from the 80’s.

It all fits. If the message board poster's guess is correct, who else would have the intelligence and contacts to create this sort of web of deceit and illegal activity, than the guy that invented the modern variant of the game?

So now the question is what is going to be done about it? The information is out there. Their bankers are no doubt now freaking out and trying to figure out how to contain this, how to run disinformation, and distance themselves. The inevitable huge class action lawsuits will come, as the pockets rarely get this deep. Discovery will no doubt implicate more of a who’s who of the nation’s wealthy, where self-made is synonymous with immune from prosecution – until now.

I had made a number of predictions in the previous Sanity Checks. One very specific one relates to "financial journalists" who have been co-opted by the bad guys, and who appear to me to be nothing more than mouthpieces and apologists for the perpetrators. And right on schedule, bam, first Carol Remond publishes a slam with a false and deliberately misleading and alarmist headline (it read "OVERSTOCK subject of SEC Probe", referring to the rumored informal investigation initiated by these hedge funds, that Dr. Byrne said he'd heard about from February, that fizzled into nothing) and then the Lapdog trotted out a typically lame commentary, that ignored all of the facts laid out by Byrne, and focused on being an apologist for the hedges. We were also treated to CNBC referring to the perpetrators as "respected hedge funds" (there's an oxymoron) by talking heads that barely could conjugate or read their lines.

The inter-connectedness of the players, most of whom are within a 1 mile strip of Manhattan, is pretty damaging, and the scenario is plausible to my ear. This also explains why the financial press seems so disinterested in reporting on the obvious manipulation that has been noted by blogs all over the web. It explains why so many of the supposedly unbiased reporters invariably have an agenda. It explains why so many shareholders have been completely and totally screwed by a system that has apparently been robbing them blind, in a fraud as blatant and complete as Enron, Worldcom and Tyco combined. And it explains why Spitzer is so disinterested in exploring this. After all, he’s friends with one of the participants, and undoubtedly needs campaign money to run for governor – and these are billionaires we are talking.

So now we have all the puzzle pieces, and the SEC and the Department of Justice can’t just pretend that conference call didn’t happen, and the brokers on the hook for the 10 million bogus shares of Overstock can’t just keep selling counterfeits and pretending they are real. Or maybe they can, judging by today's trading.

Anyone holding OSTK shares should get paper certificates, now. That will be the only protection from the coming meltdown, as millions of shares that don’t exist have to be covered out of around 100K real shares.

Folks, email and fax your federal and state regulators demanding subpoenas be issued immediately against the parties named in this call. Call your brokers and demand your shares be issued in paper form, today, no excuses.

And if you are holding any of the other companies these guys have been robbing, NFI, NAVR, PPD, KKD, NFLX, ALD, TASR, HANSEN, etc. do the same.

Just to end on a fun, upbeat note, here's a multi-part bonus question for the gang: What founder of what private investigation/security firm lives next door to what secretive hedge fund mogul, whose wife worked for what financial periodical?

It really is a small world.

Hopefully law enforcement will now get involved and put a stop to this, and bring the perpetrators to justice. If not, it will all come out in discovery.

11 Comments:

Blogger uncleed said...

Bob,

Have you read J Mathews blog today? In my opinion there's a very intersting paragraph -

"In the January earnings call, for example, Byrne allowed a no-nothing paranoid using the pseudonym “Bob O’Brien” to take over almost a quarter of the call explaining in great and faulty detail the purported conspiracy among short-sellers."

He says you expained things in faulty detail. If he was on the up and up, then how would he know it's faulty. Very interesting. I think your exhaustive work is starting to pay off. Time will tell, but I think this is the beginning of the end for the corupt short sellers.

uncleed

8:53 AM  
Blogger tiddman said...

Patrick Byrne has lost his mind.

2:21 PM  
Blogger bob obrien said...

Thanks for the insightful commentary.

I suppose that the team of private investigators, ex-SEC and NASAA attorneys, litigators, forensic accountants, and all the rest have also lost their minds.

Thank goodness that you, who must be privy to the work that this team did before bringing this suit and vetting his presentation, and who must have reviewed all the evidence that they have, are here to enlighten us with your observations.

Brevity is usually the soul of wit.

Not today. Perhaps you can suckle Jeff Mathews on his blog while he calculates the damage that OSTK's price rise did to his dinky portfolio next?

Do stop back in at some point. A distant one, preferably.

4:20 PM  
Blogger niel said...

Well "Bob". This is going forward much more rapidly than I ever expected. it will be interesting to see how this weekend produces a "circle the wagons" mentality. Once again. Keep up the good work.

6:46 PM  
Blogger bob obrien said...

It is moving quickly. So far we've seen a highly distorted article with my vote for dishonest headline of the year from Carol Remond (wherein she states "OSTK Facing SEC Probe" WRT the rumored Feb. informal probe that was never confirmed), we've seen a limpwristed bitshslap from the lapdog, and I presume we've heard from Jeff Mathews, the hedge fund choagie who censors any dissenting views on his blog (but who has the same 5 or so eerily similar sounding aliases congratulating him for his piercing insight on each of his prattles).

So going according to plan so far, no surprises.

Oh, and we had some snotnose at the Fool collect his $250 for slamming Byrne, while confusing half the data in his screed and trumpeting his ignorance and continued commitment to the maintenance of that ignorance by refusing to entertain any dissenting possibilities.

So next, I think we get both barrels - Barron's, and the WSJ, and maybe Liz at Forbes. Maybe all this weekend.

And Monday a dump at the open to simulate panic in the market.

Anyone familiar with NFI will find it a yawn - amateur theatrics by a not particularly compelling cast.

So far exactly as predicted. They are nothing if not predictable.

10:43 PM  
Blogger mfairview said...

Jeff seems to have a few more dissenting opinions on his latest blog. I suspect that Byrne's fingering him today didn't do much for his reputation.

1:21 AM  
Blogger Jer. 9:24 said...

This comment has been removed by a blog administrator.

9:09 AM  
Blogger Jer. 9:24 said...

Bob,

Please don't be too hard on little Seth Jayson of the Motley Fool. The best thing the little "fool" could do would be to short OSTK, as he claims to be contemplating (though it is doubtful he is a big enough player to be able to naked short and it is also doubtful he can afford to place a legitimate short on OSTK at this time).

At this point I think buyers, especially those just now hearing about what is going on, would love one more chance to pick up OSTK shares "on the cheap." So go for it, little "fool," and let's hope the paid shills you (that is, you, Bob, not Seth) have named (and others) do their usual, predictable thing and the bigger manipulators also play their usual games Monday morning. I would bet this time they can't even get the dirt out of the hole they are digging for themselves. When manipulators churn the market down to try to shake out long holders (as they seem to to on many of the Reg. SHO list victims) but no one sells and in fact more interested buyers go long, what happens?

It appears the simple, straightforward complaint that Mr. O'Quinn, et al., have filed in this case might be a perfect motion-to-dismiss-proof entre' into the books and records of the defendants, which just might lead to amended complaints with additional claims listed, and maybe even more defendants named. Might also be interesting stuff for the criminal authorities to review. Who knows?

9:16 AM  
Blogger bob obrien said...

Jer:

It is fun to note that both Seth's headline and Carol Remond's headlines were changed after trading was done for the day - yet another indication of the subtle ways that these hacks contribute to the manipulations.

Details are available on the news page at ncans.net

3:18 PM  
Blogger qcontra said...

Curious that very few news articles mentioned O' Quinn's success in previous billion-dollar cases and ZERO articles mentioned Rudy Giuliani's law firm's involvement on behalf of Byrne.

1:28 PM  
Blogger bob obrien said...

Also curious that none of the articles reference that Patrick indicated that they have signed affidavits upon which they are relying.

They are spending a lot of time trying to paint him as a loon, while ignoring the ominous facts of the case, and the legal team. Why, if I was cynical, I'd think that they were deliberately trying to mislead the public!

1:33 PM  

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