• Jeff Matthews

Of “CEOs Who Obsess” and the Prisoners of Guantanamo Bay

I know an FBI agent. Good guy, family man, and very interesting to talk to. He’s worked 25 years in the business and seen it all.

A couple of years ago he came back from Guantanamo Bay, where he’d interviewed prisoners from the war in Afghanistan. The prisoners—to his surprise—had a great deal more in common with the criminals he’d experienced in the U.S. than with the great religious crusaders he’d expected to find in the makeshift pens of Guantanamo Bay.

For starters, religion wasn’t the issue for most of the men: they were fighting for the loot. Low birth order (being number five or six out of seven or eight kids in a family) often explained their dropping out of the family and winding up in the jihad, as it also frequently explains young men who leave their families and wind up in jail here in the U.S. Also, many of the men had alcohol and drug problems, like their U.S. counterparts.

But the most common element, according to the agent, was this: whatever they were caught doing—no matter how baldly they were caught in the act—it was never their fault, ever. It was always the other guy’s fault—the guy who didn’t get caught:

“I was just a waiter in a restaurant when Mustafa began firing at the soldiers…” “I never had a gun—Khalid had the gun…”

“Mohammed made me get them the ammunition…”



I was thinking about these prisoners of Guantanamo Bay after hearing of Monday night’s appearance of Overstock.com CEO Patrick Byrne on Jim Cramer’s “Mad Money” television show.

As he does on conference calls, Byrne apparently spent great energy putting the blame for his company’s problems—and they are, in my view, vast—on the media and shorts, including me and this blog. Indeed, like those prisoners of Guantanamo Bay, Byrne seemed to blame everybody but himself for problems which, looking at the record so clearly spelled out in conference call transcripts and his own expansive quarterly shareholder letters, are in reality nobody’s doing so much as his.

In my 25 years’ experience of investing in and shorting stocks, it is a standard tactic, of CEOs whose companies eventually come to grief, to “blame the shorts.” Enron CEO Ken Lay, for example, squarely credited his company’s crisis not on the fictitious numbers, but on “the shorts.” (Even if you’re sick of Enron, you should read the new and excellent account in “Conspiracy of Fools”: the background to the fraud is not only compellingly told, but it is highly instructive for investors of all stripes.)

Indeed, my very first post on Overstock.com and Byrne, “When CEOs Obsess,” arose from his finger-pointing on Overstock’s January 28th conference call. Byrne attacked not only short-sellers and the media, but snidely referred to Pacific Growth analyst Derek Brown as “my old friend and naysayer.” Brown’s mistakes, apparently, being that he didn’t recommend the stock, and he dared ask skeptical questions on otherwise back-slapping “great quarter guys”-type Overstock conference calls.

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My this-CEO-has-issues radar went up half-way through that January 28th call.

(Look no further than the case of Paul Jain, a now-convicted criminal who once ran a public company called Media Vision, for a terrific example of CEOs Who Obsess: Jain blamed shorts and journalists for his company’s problems. His best quote, as I recall it, came during a rant aimed at Herb Greenberg, a journalist who did one of the best jobs of financial sleuthing on record by exposing Jain’s fraud: “the shorts will rot in hell.” Of course, that remains an open issue, but Paul Jain himself did time here on earth…while Greenberg happens to be the same journalist who first began to raise questions about Overstock.com.)

And when, towards the end of that January 28th conference call, Byrne allowed a supposed stranger named “Bob O’Brien” to lay out an ignorant, paranoid, and almost entirely fictitious analysis of how something called “Naked Short-selling” was destroying NASDAQ stocks in general and Overstock.com in particular…well, I began to pay special attention to “Doctor” Byrne and his track record at Overstock.com.

And what I found was extraordinary, even in the annals of “CEOs Who Obsess.”

Examples are too numerous to mention here—please read the three-part “Mystery of the 38 Diamonds” elsewhere on this blog for a recap of the more egregious examples of how Byrne’s boasts of new ventures and grand opportunities have come to little.

But until last week’s earnings report and Byrne’s weird explanation of his massive diamond play, it was that January 28th conference call and the apparently sham “question and answer” session Byrne conducted with “Bob O’Brien,” a man who claimed to be a stranger, that stayed with me.

After being introduced by the conference call operator, O’Brien introduces himself to Byrne, saying his name “is not familiar” to Byrne, but he, O’Brien, is a shareholder who can explain the short-attack on Overstock and others.

(“Bob O’Brien” is not the real name of the Overstock conference caller—he uses a pseudonym, claiming fear of retribution from the shorts; more likely he fears prosecution for threatening the families of short-sellers through message board posts under his other pseudonym [“dirtydirtydeeds”] in which he lists wives, children and home addresses of those who offended him).

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Byrne likewise pretends not to know “O’Brien” even though two men had been in contact for several months prior to that call, according to Bryne’s own message board posting two weeks later:

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2/15/05 “Obrien called me for the first time

shortly after the October conference call.

He talked about all of this…”

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Isn’t that something? The CEO of a public company pretending he didn’t know a guy during a long conference call with investors.

But it gets better: as the January 28th transcript shows, the two men continue with a ten or fifteen minute back-and-forth in which “Bob O’Brien” describes a paranoid conspiracy theory which Byrne pretends to be hearing for the first time:


“O’Brien” (to Byrne):

“I don’t even know if you know this, but Overstock has been listed on 5 different German exchanges. They’re in Frankfurt, in Berlin, Munich—you’ve got one other one. I am just going to guess that you didn’t call and ask for that.”


Byrne (to “O’Brien”)

“It’s news to me.”



Towards the end of their little one-act play, Byrne furthers the apparently deliberate deception that he knew nothing of what “O’Brien” was saying:

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Byrne (to “O’Brien”):

“You know a heck of a lot more about it. I buy toasters and sell toasters….I don’t know any of the stuff you are talking about but it is interesting stuff.”




However, one month after these exchanges, on February 28th, Byrne himself wrote on his message board:

“By December of 2004 we found ourselves listed on five exchanges in Germany and one in Australia. Someone had gone to all the trouble to get us listed on these exchanges…”



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I am no professor of logic, nor am I an FBI agent or an attorney or a regulator. But based on the conference call transcripts and Byrne’s subsequent message board postings, it would appear to me that not only did Byrne know who O’Brien was, but, as CEO of a public company, he deliberately misled listeners on his conference call by staging a supposedly spontaneous question-and-answer session.

Now, should this ever become an issue, Byrne’s reaction will likely be to blame the shorts, Herb Greenberg, Jim Cramer, this blog, the Trilateral Commission, or all five together.

But none of us forced Patrick Byrne to pretend he was talking to “Bob O’Brien” for the first time in his life on a conference call with investors; or made him pretend he hadn’t already been told his company’s shares had been listed (for whatever purpose) on German exchanges; or directed him to say, for the benefit of shareholders, short-sellers and investors alike, “I don’t know any of the stuff you are talking about” on January 28, 2005 when he apparently already did know it “by December 2004,” to use his very own words.

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Imagine, for a minute, that Jeff Immelt, the A+ CEO of General Electric, for whatever reason, allowed a man using a false name to get on the GE conference call with investors, pretended they didn’t know each other, and then let the man describe a ficticious conspiracy by Siemens’ healthcare people to illegally undercut GE medical equipment, for the purpose of drawing regulatory scrutiny of Siemens Medical…


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And imagine that Jeff Immelt later disclosed that he had known the man and had already heard the Siemens conspiracy theory prior to the call with investors….

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Would not Jeff Immelt be fired, in about ten seconds, by the GE board of directors for misleading investors, shareholders and the media alike?

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Makes you wonder why the Overstock.com board has not looked into the Byrne/O’Brien conference call, or the various cases where Byrne’s hype never matched the results, whether it was “Project Rocket” or “Project Ocean.”

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Perhaps the board stopped listening after Byrne told the Wall Street Transcript back in 2001 that by the year 2004 “I would want to see us well over $400 million and as profitable as hell. Making a ton of money. I want to see that next year.”

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Or, maybe, as the FBI agent discovered with the prisoners of Guantanamo Bay, the Overstock board knows that that whatever it was that happened on that call, it wasn’t Patrick Byrne’s fault.

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Which would also explain why that same board allowed its CEO to go out and make a speculative diamond buy for $7.2 million, described as “the steal of a lifetime,” not long after the company had just finished writing down the last of his previous large speculative buys: $5 million worth of Franck Muller watches.

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We will be exploring that diamond “steal of a lifetime,” and, perhaps, other facets of the Overstock saga later in the week.

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Jeff Matthews I Am Not Making This Up


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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.

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The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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