2) Journalists Tried to Be Players But Became Pawns

The second time I heard the joke I was standing on a hilltop in the middle of the night overlooking Kabul, Afghanistan in February, 2004. I finally got the joke that second time I heard it, but only because I had just had the same gag pulled on me while appearing on CNBC’s Kudlow & Cramer show a few weeks earlier. I’ll start there.

Overstock had gone public in May 2002 and, by the end of 2003, in the eyes of some, it was doing well. In 2003, its fourth year of business, Overstock’s revenue was just shy of $300 million. Many competitors had come and gone, amassing losses of half-a-billion or more, before shutting their doors. Amazon, the 800-pound gorilla in our industry, had burned $3 billion in its start-up cycle before having a profitable quarter. By comparison, Overstock had lost $68 million but had already had one GAAP-profitable quarter (“GAAP” = “Generally Accepted Accounting Principles,” the strictest accounting measure of profitability). In addition, Overstock had had two EBITDA-positive quarters (”EBITDA” = “Earnings Before Interest, taxes, Depreciation, and Amortization,” a somewhat looser standard that some on Wall Street apply to companies on the grounds that it better approximates the “true” economics of a firm). Moreover, in 2002 Overstock had a full year (2002) of positive operating cash-flow (cash-generating ability is another way, and to some the people, the most important way, of measuring a firm’s real economics). In addition, Overstock had ended 2003 with a bang-up quarter, growing 94% and generating $21.9 million in operating cash flow for Q4. All this occurred while we were jockeying around capital and infrastructure that were miniscule in comparison with the hundreds of millions, or even billions, that “Wall Street’s darlings” had been employing.

As was becoming my custom, at the end of the quarter I wrote a lengthy shareholder letter explaining what was going on in the business, where my colleagues were doing well, where I was screwing up, and projects the company needed to accomplish in the future. In that letter I mentioned, “Gross profit,” a term about as common in the discussion of financial statements as, I’d estimate, the term “wide receiver” is in discussions of football (in the case of my letter, 2.5% of the letter concerned gross profit).

The day our earnings press release appeared (with my letter embedded in it), Larry Kudlow & Jim Cramer of CNBC invited me to appear on their TV show. I had been on Kudlow & Cramer once or twice by then and they seemed like smart, decent fellows, so I agreed, and drove to the studio in Salt Lake City from whence one does remote interviews. This interview was different from our prior ones, however, in that they attacked me aggresively. The basis of their attack was my use of the mysterious phrase, “Gross profit,” in my discussion of Overstock’s financials. Cramer in particular berated me as if he had caught me in some heinous incantation. They gave me a brief moment to respond, then quickly signed off.

As I drove away from the studio feeling somewhat mystified, my cell phone rang. The caller was a man from deep within Wall Street “smart money” circles, someone known widely within the hedge fund community, who has been friendly to me, and even has looked out for me when he could. He speaks in charming if profane emphatics.

He said, “You know what just happened, don’t you?”

“What do you mean?” I asked.

“You want to know what just happened? I’ll f—ing tell you what just happened. Here’s how it works. Those two guys are part of the short-seller community. Cramer especially is part of this ring of hard-charging short-sellers on Wall Street. I’ll bet you anything that one of his buddies is short your company. Whoever it is saw your earnings release, saw you blew your numbers away, got on the phone to Cramer and said, ‘Don’t you dare let this thing start moving. Don’t you f—ing dare let this move!’ So Cramer goes on TV and screams that nonsense at you. I bet my last f—ing dollar that’s what happened. It’s been like this all my career, but it’s never been like this.”

Later that week, a fund manager who had seen the interview told me, “That was the most unprofessional interview I have ever seen in my life.” In time, others would mention it to me, so that months and even a year later, I’d meet people who said, “I saw you on with Cramer one time. That was the craziest interview I ever saw.”

That was the first time I heard the joke, but I did not get it until I heard it the second time, a few weeks later, in February, 2004, while I was in Kabul (because it is a natural next question: I was in Afghanistan searching for artisans to become suppliers for Worldstock). Our PR Director at the time, a calm, mellow Californian named “Scott,” had sent an urgent message saying that a BusinessWeek reporter, Tim Mullaney, was going to write a story attacking the price comparisons listed on Overstock’s website. Mullaney was asking about a set of products which were precisely the same products that another two reporters had called asking about that same week. Since Overstock had about 12,000 products at the time, the coincidence was odd. In addition Scott said, Mullaney was acting as though he wanted us to know he planned on writing a hatchet job.

Scott wanted me to contact Mullaney at BusinessWeek. I had a rented satellite phone in my luggage, so I charged it and walked up a hill overlooking my hotel on the outskirts of Kabul, and called Tim Mullaney at BusinessWeek’s offices in New York.

As background, here is the lowdown on price comparisons. Price comparisons are imperfect because price data is imperfect. Overstock does the best it can to give real price comparisons, updating data as we learn it (electronic products are the most troublesome because prices can drop suddenly when new models are introduced). Above all, Overstock is clear about its price comparison methods. Every month Overstock sells a million items, and a few dozen times a customer informs us that a price comparison is wrong, at which point we update our system with the new data, if we have not already caught it ourselves. This always seemed like a pretty fair system (but recently Overstock adopted Amazon’s price comparison methods).

So in February 2004 I was standing in the wind on a hilltop outside Kabul in the middle of the night trying to explain this to a BusinessWeek reporter through the static of a satellite phone. As I spoke he started saying, “Uh-huh, uh-huh, uh-huh.” I paused, thinking he was indicating he understood and had another question to which he wished to move on, but none came. “I’m sorry, were you asking me something?” I asked.

“No, no, go ahead, I’m with you,” Mullaney answered, adding “Uh-huh, uh-huh uh-huh” as soon as I started to speak.

Mullaney asked me about a few electronic products, and I explained to him the issue with electronics: that when a manufacturer introduces a new product the comparison price on the older product drops, and can catch Overstock off-guard until we catch the change ourselves or a consumer notifies us. He had an example of a competitor selling a television for a price that was $20 below Overstock’s: he had not factored in the fact that they were charging $100 shipping, and Overstock charged $2.95 shipping, so in reality their real price was $77 higher than Overstock’s. I began to explain this to him. “Uh-huh uh-huh uh-huh,” he said, cutting me off.

I signed off, perplexed.

The next day I got a message from that same man within Wall Street’s “smart money” set, the one who had called me after the bizarre Kudlow & Cramer interview. His message to me in Kabul was that the word was out around Wall Street that negative stories on Overstock were about to appear in BusinessWeek and The New York Post. He even predicted the days they would appear and the lines of attack.

The stories did subsequently appear on the days he predicted they would, and they said just what he had told me they were going to say.

That was odd, because hedge funds are not supposed to know the timing and content of articles coming out in the press before the general public does. I’m not sure, but I think I read that somewhere.

That’s when I got the joke. It was the second time I’d heard it (Kudlow & Cramer was the first) but I’ve always been a bit slow on the uptake.

Since that time there have been many strange moments and I’ve learned a lot. I will not try to convince you of anything, but for the rest of this chapter I am going to tell you that same joke, in numerous ways. Most of the things I write here you will be able to check, but some you will not, in which case you’ll have to decide for yourself if I am telling the truth.

Even if you never heard of or cared about Overstock.com, you should know this: if you invest in the US stockmarkets, then whether or not you get this joke, it gets you.

I will spend just a few moments recounting the sordid history of Sam Antar the Crook. Then, and only then, will the reader grasp the import of the question, “Whose interests are being served by the recent promotion of Sam Antar the Crook? Why him, why suddenly, and why now?”

1) In the 1980’s a New York electronics retailer named Eddie Antar, running a chain of discount electronics stores called, “Crazy Eddie,” perpetrated an enormous swindle. As a recent Fortune Magazine article put it, “The debacle cost investors roughly $145 million and involved just about every kind of accounting fraud then known to man, including receipt skimming, money laundering, and the counting of bogus inventory.” A key player in the swindle was the company’s CFO (and Eddie Antar’s cousin) Sam E. Antar.

2) When Sam was busted, he ratted out his two cousins, who each served several years in prison on the strength of Sam’s testimony (I guess Eddie was Crazy after all, to trust Cousin Sam). Sam Antar ratted out family members in return for a reduced sentence of six months’ house arrest and 1,200 hours community service.

3) Barry Minkow is a convicted stock cheat who, at the ripe age of 23, was sentenced to 25 years for his various stock fraud schemes (no small feat). He was released after 6 years. Recently he became entangled in a new stock manipulation case. Three months ago Minkow was subpoenaed and deposed, and in that deposition (pages 8-10), disclosed that Sam Antar the Crook had paid Minkow $250,000 (in two payments, one of $100,000 and one for $150,000) to turn his skills against a public company that he, Sam Antar the Crook, was shorting.

4) Within months of Sam Antar the Crook paying Minkow $250,000, the State of New York issued a $471 tax warrant against Sam Antar the Crook (it turns out that Sam has quite a history of these, so it cannot be put down to forgetting to put a stamp on an envelope). Is the fact that a fellow could not pay a $471 tax lien, but could wire a quarter-million dollars to an ex-con stock cheat, odd?

5) At the request of Sam Antar the Crook, Utah Attorney General Mark Shurtleff met with Sam on the condition that Sam not attempt to spin it as an endorsement of Sam’s views. Sam had his meeting then immediately welched on that promise. The Attorney General wrote a letter describing this chain of events, along with a disclaimer against believing Sam, that he twice attempted to post on Sam’s blog. Sam refused to let the Attorney General post it. At that point, Attorney General Shurtleff made public this letter scolding Sam for welching, and discouraging the public from listening to Sam about pretty much anything (”In light of Mr. Antar’s background as a convicted white collar criminal, we believe that the public should carefully scrutinize and objectively examine any public statements Mr. Antar makes.”)

6) Sam and Sam-cronies (Gary Weiss and Howard Sirota) regularly accuse those who disagree with them, or try to expose their shenanigans, as anti-Semites. Ed Manfredonia, one of the many whom they have repeatedly accused of anti-Semitism, asked the Anti-Defamation League to get involved. Displaying great class, the ADL got involved, and wrote this letter utterly rejecting those allegations. Notwithstanding the ADL’s statement, Sam continues to make endless allegations of anti-Semitism towards those who cross him.

7) These days Sam spends much time posting dozens of deposition-style posts directed at me and my colleagues, over-and-over, dozens if not hundreds per week (what an odd “hobby” for Sam to have). Generally they are inconsequential half-truths, quarter truths, or flat non sequiturs. Even people who formally tolerated him have begun pointing out his lunacy to him.

Sam attempted to intimidate one of my colleagues by posting on a public message board the names and address of my colleague’s wife and two little girls, ages 6 and 9:

___________________________________________________________________

___________________________________________________________________

How would reputable journalists treat Sam? They would not touch him with a ten-foot pole. Which would explain why several figures within the New York financial media are anxiously and suddenly promoting him.

That’s right: notwithstanding the fact that Sam is not just a crook but a swindler, not just a rat but a guy who ratted out his own family, not just a $500 tax cheat but one capable of paying a convicted stock swindler $250,000, not just a message board clogger but one who threatens 6 and 9 year old girls, Sam Antar the Crook has recently received heavy, positive promotion by the New York financial media.

For example, Sam Antar has recently appeared on CNBC, Herb Greenberg has salivated over him at lunch, and Forbes columnist Gary Weiss cannot stop fondling Sam in print (more on them anon). Most significantly, Fortune Magazine recently published a 2,738 word profile of Sam Antar (”Takes One to Know One”) in the style known among journalists as, “a lotion job.” What was doubly remarkable about Fortune’s profile of the reformed Sam was that they published the piece even though, as they got around to mentioning over 4/5 of the way through:

“As a would-be fraudbuster, Sam E. has yet to notch his first kill. (Although in fairness he doesn’t hold himself out to be a full-time 10-Q detective. ‘I don’t have 40 people working for me like the SEC,’ he says.) He hasn’t brought any companies down or caused any regulators to open any investigations.”

That is, Fortune wrote a lotion-job profile of an ex-convict swindler whose discernible contributions to humanity consist of nothing noteworthy beyond taking part in an infamous and massive scheme of fraud and embezzlement then saving his own skin by ratting out two family members in return for a reduced sentence, and whose recent “reform” has amounted to being a paymeister to a ex-con stock manipulator and threatening two little girls, but nothing beyond this that Fortune can name.

Does that seem odd? Because it seems a little odd to me.

Is the sudden, major promotion Sam Antar the Crook is receiving from the New York financial media due to some inexplicable lapse in their research or understanding, or is there a motive behind it? If there is a motive, whose motive is it? What interests are being served?

Cui bono?

Which question brings us one step closer to the heart of the problem: Gary Weiss, The New York Post, Herb Greenberg & CNBC, and Fortune Magazine.

——————————-

Sam E. Antar, the Crook

I now turn to Gary Weiss. Last year one of the most prominent journalists on Wall Street warned me, “I’ve known Weiss for years. Be careful. He’s a psychopath.” As you will see, he was neither joking nor exaggerating. I think, however, that Gary is better described as a “Scaramouch.”

In a series of brilliant investigations, Judd Bagley, a reporter-investigator-technologist friend of mine (and more recently, I am proud to say, a colleague) studied the IP footprints Gary’s computers have left scattered across the Internet for over a decade, and posted his extraordinary analyses of them on his cleverly-titled site, “Antisocialmedia.net”. Judd’s posts are as disturbing with regard to what they reveal about our society’s discourse, as they are regarding the activities of Gary himself.

It is a complex story that I recount below in as clear and straightforward a manner as I can muster. The best way for me to do that is to break it into 7 short stories. Embedded within each are links to carefully documented research . I respectfully suggest the reader try to understand these as individual stories, before synthesizing them into one complete picture.

In case you get lost in the telling, however, here is the take-away:

Gary Weiss, formerly a reporter with BusinessWeek and currently a columnist at Forbes, has actually spent over a decade posting under a variety of fake names on Usenet groups, stock message boards such as Yahoo!, and on Wikipedia, in a remarkable attempt to confuse, distort, and hijack social media so as to cover-up criminal activity.

#1) Gary’s start in social media

Gary started with simple Usenet group posting in the mid 1990’s, often making productive contributions to newsgroups devoted to matters Judaic. However, as this analysis shows, by the late 1990’s Gary had become a chronic “sock-puppeter,” that is, he maintained a stable of identities and personalities under which he could post in order to steer conversations to his ends (Gary even posted anti-Semitic statements that he could then respond to under other names). Another user caught Gary red-handed and confronted him. Establishing a pattern that would become Gary’s hallmark, when he was caught red-handed Gary Weiss practiced the “deny-deny-deny-then-disappear” school of personal responsibility.

Another pattern of Gary’s emerged as well: that of accusing anyone who disagrees with him about anything as being anti-Semitic. One person whom he has accused of hundreds of times of anti-Semitism complained to the Anti-Defamation League. Showing immense class, the ADL looked into it all and dismissed Gary out-of-hand. Notwithstanding this, Gary continues to level this allegation against that same man (under the assumption, presumably, that he understands anti-Semitism better than the ADL).

#2) Gary’s manipulation of Amazon reviews

For years Gary posted numerous reviews on Amazon praising his own books and trashing the work of other business journalists, as this analysis shows. While Gary’s sock-puppets trash other journalists (e.g., Charles Gasparino), there is one journalist whom he never bashes, but whom he uses his sock-puppets to promote: Jim Cramer. Hilariously, though they were supposed to be the work of various disinterested strangers, Gary’s sock-puppets’ glowing Amazon reviews of his own work began disappearing the moment Judd began exposing Gary’s methods.

#3) Gary goes beserk against another journalist and that journalist’ wife at the United Nations

The following remarkable history is recounted, with thorough documentation, on these two posts.

a) Ian Williams, a British journalist, was president of the United Nations Correspondents Association (UNCA) and UN correspondent for The Nation. Mr. Williams’ wife, a BBC World Service journalist (and native of Uzbekistan), also held a position within the UNCA.

b) Gary’s wife (an Indian national holding herself out as a correspondent for the Indian newspaper The Pioneer of India) applied to work within the United Nations Correspondents Association. To be admitted to the UNCA she had to demonstrate that she was in fact a journalist who covered the UN. Towards that end she submitted copies of her stories from the front page of The Pioneer of India, along with a letter from The Pioneer’s editor, Chandan Mitra, attesting to her employment there. On that basis she was admitted to the UNCA and began working in the UN offices in Manhattan.

c) Gary’s wife coveted the UNCA position above her that was then held by Ian Williams’ wife. Gary attempted to dislodge Ian Williams’ wife from that position by claiming that Mrs. Williams had lied in order to get her visa to enter the US, so as to create an opening which his own (Gary’s) wife could take. Gary’s allegations proved false.

d) Journalists at the UNCA noticed that the stories which Gary’s wife was regularly submitting from The Pioneer to document her ongoing UN coverage were of identical size and location on the front page of The Pioneer. A bit of investigation proved that they were all forged, and had been photo-shopped on a computer. The Pioneer was contacted, and its Editor Chandan Mitra stated that Mrs. Weiss had “never been engaged by The Pioneer for any purpose,” his signature on her documentation was “an outright forgery,” as was the letterhead upon which it had been generated. Simply put, Gary’s wife was a fake : she never was a reporter for The Pioneer of India. Gary’s wife’s UN credentials were revoked and she was escorted from UN premises under armed guard.

e) Within days of the exposure of Gary’s wife and her being escorted out of the UN, Gary was on Amazon writing reviews under the name “Ted Dichtler” trashing Ian Williams’ work, and within 30 days, had founded “Mediacrity,” a blog putatively devoted to media criticism, but actually largely engaged in (anonymously) hammering away at journalist Ian Williams for being “a fourth rate hack” and continuing the demonstrably false smears against Ian Williams’ wife.

f) It should also be noted that when confronting a man on a Usenet group, Gary posted that man’s wife’s name and home address. Pretty sleazy (although the man in question was a bigot, I think good manners demand that one not get even with a guy by revealing his wife’s name and address). In contradistinction to Gary, however, Judd, ever the gentleman, wrote:

“AntiSocialMedia.net has issues with Gary Weiss, not his wife. As it happens, one of the more startling examples of abuse of social media we’ve discovered anywhere and the central theme of this, the third part of this series on Gary Weiss - cannot be told without making reference to that relationship. However, because her identity is ultimately not material to this situation, we shall only refer to her as ‘Mrs. Weiss’ (though Weiss is not her real last name) and have set this site’s comment filter to immediately reject any comments that contain either her first or last name. Comments containing any other personally identifying information belonging to Mrs. Weiss will be immediately deleted and the commenter barred from further use of this site.”

I will follow the same principle here on DeepCapture.

g) Aside from the general zaniness of the story, there are at least two take-aways from this:

i) Gary had accused Mrs. Williams of lying to get her visa, but those accusations were false. Gary did this while Gary’s own wife was forging her credentials, which credentials were the basis of her own employment at the UN. Thus, Gary and his own wife were engaged in the act of which they were falsely accusing another journalist’s wife. That act takes a sociopath (e.g., the kind who could post anti-Semitic comments while continuously accusing others of anti-Semitism).

ii) What was Mrs. Weiss doing for those years when she was given access to the UN, under the guise of being a correspondent for The Pioneer of India?

#4) Gary manipulates stock message boards

Gary also stays busy posting thousands of times per year on stock message boards, as this remarkable piece by Judd exposes. Gary’s stock message board sock-puppeting and “bashing” sometimes involves switching among 6 sock-puppets while going at it for over 24 hours at a stretch, in a remarkable display of intensity and duration. What an odd “hobby.” Curiously, the stocks with which he concerns himself generally mirror the positions of Jim Cramer, Roddy Boyd, Bethany McLean, Herb Greenberg, Carol Remond, etc.

If only there were a pattern…

#5) Gary Weiss, Pyschopath: The Prequel

At this point you are probably wondering, “Who in the hell is Gary Weiss?” Allow me to give you seven pieces of background, a-g.

a) In the 1990’s, Gary made a name for himself with a BusinessWeek series exposing the Italian Mob (in particular, the Gambino Crime Family) and its infiltration of Wall Street. Bravo. But he relied heavily on two sources. One journalist who interviewed them told me that after debriefing them, and examining materials they supplied, “I can safely say that Gary Weiss built his career in the 1990’s just typing up whatever two sources gave him.”

b) In the mid-1990’s a Forbes reporter based in Russia named “Paul Klebnikov” wrote an expose called, “The Godfather of the Kremlin?” about an alleged Russian Mafia figure named Boris Berezovsky.

c) In 1999 Al Chalem and Laier Lehmann, two New Jersey stockbrokers operating a New Jersey securities firm called “Harbor Securities,” were executed in a New Jersey mansion. The same two sources who had supplied Gary so much other material presented him with evidence that this time it was not the Italian Mafia, but the Russian Mafia, and in particular, Boris Berezovsky. Gary then ran a story that (they maintained) fabricated everything they had told him in an attempt to divert attention from Russian involvement and focus it on (in this case non-existent) Italian Mob involvement. One of Gary’s sources actually sued Gary in an attempt to get public that which he felt Gary was suppressing.

d) In 2000, Forbes’ Paul Klebnikov completed a book, The Godfather of the Kremlin. It reiterated his earlier allegations about Mr. Berezovsky, but without the question mark. Quickly there appeared a series of anonymous Amazon reviews trashing Mr. Klebnikov’s book and discounting its conclusions. On the same days these reviews appeared on Amazon, Gary had a rash of positive reviews of his work. This and the language of the reviews trashing Mr. Klebnikov’s work raise an obvious question: if these startling coincidences of timing were not in fact coincidences, why was Gary adding to his normal routine (that is, going on Amazon with sock-puppets to promote his own work) the additional labor of trying to discredit the work of a Forbes journalist (Paul Klebnikov) who was trying to expose the Russian Mob? And is this related to the claim of his own two sources that his coverage of the execution of the two stockbrokers was designed to move attention away from the Russians and onto the Italian Mob?

e) On July 9, 2004, Paul Klebnikov was assassinated leaving the Moscow offices of Forbes.

f) Days later in July, 2004, Gary left BusinessWeek. If you ever want to shut a BusinessWeek reporter up, ask, “What were the circumstances surrounding the departure of Gary Weiss from BusinessWeek?” In a notoriously gossipy crowd, it is a closely guarded secret.

g) One of the first things Gary seems to have done after departing BusinessWeek was to join Project Klebnikov, “The global media alliance investigating the July 9th, 2004 murder of Paul Klebnikov, the editor-in-chief of the Russian edition of Forbes magazine.” I’ll bet O.J. Simpson finds his wife’s real killer before Gary solves that investigation.

#6) Gary covers-up for the DTCC from within DTCC offices:

Speaking of strange places from which to post: at the heart of our nation’s stock settlement system, and hence, at the heart of the issues of concern to DeepCapture, is a nearly unknown corporation called “The DTCC.” The company provides settlement for the nation’s capital market: $1.5 quadrillion in trades are settled there every year (that is, about 30X the economic output of the entire planet). For most of its history it has largely escaped regulation: state regulators are admonished that they cannot peer inside because the DTCC is federally regulated, and the DTCC has told federal regulators it escapes their regulation due to its strange ownership structure (one former federal regulator, and one former employee of the DTCC, have both told me the feds would not know where to begin if they tried to regulate it).

In short, at the heart of the world’s economy is an enourmous black box that is regulated except on the days it’s not, and through which 30X the economic output of the world flows. It is my contention that much of Wall Street’s illegal activity is funneled through this strange entity.

The huge, nondescript building in downtown Manhattan that houses the DTCC is something of a Fort Knox. Long-gun toting guards watch the entrances, and journalists who have been inside tell me that entering it is tougher than getting into the Federal Reserve or any comparable institution.

Gary recently made a slip that revealed he was inside the offices of the DTCC, using one of their computers to post on Wikipedia about the DTCC. Given that it’s like getting into Fort Knox, I’m pretty sure that’s odd. However, it casts some light on why Gary has been stridently denying that the DTCC is dirty and that none of the issues I have been raising regarding stock market manipulation are legitimate, and why he has (according to a colleague of his in the financial press sympathetic to me) devoted 93% of his blogs to criticizing my efforts to expose the illegal Wall Street activity which, I claim, intersects within the DTCC. Just as interestingly, when given opportunity to comment, the DTCC went into cover-up mode straight out of Bizarro World.

#7) The Finale

The following heavily-documented story qualifies as “mind-blowing.” It is so extraordinary, in fact, many people find it almost impossible to synthesize. Therefore I am going to tell it by first giving a three paragraph synopsis, then by recounting the story in 14 steps, a-n, with documentation for each.

The synopsis:

The intellectual battle over the existence of criminal naked short-selling has been won. As is demonstrated throughout DeepCapture, what was dismissed three years ago as a fringe theory is now no longer in serious dispute. There is an ongoing criminal prosecution and regulators and SRO’s have recently imposed multimillion fines over it. Papers by academic and government economists have confirmed it and reputable journalists have broken news stories concerning its effects. A Bloomberg documentary concerning naked short selling was nominated for an Emmy for long-form investigative journalism. Last summer SEC Chairman Christopher Cox aknowledged that it is real and illegal. Just last week, SEC Chairman Cox again publicly and matter-of-factly discussed the reality of this crime in a hearing at the United States Senate, in answer to sharp questioning from US Senator Bob Bennett. Earlier this week, Dr. Robert Shapiro, a Fellow of the National Bureau of Economic Research, Brookings, Harvard, and a former US Undersecretary of Commerce for Economics, explained the reality and implications of this crime on Canada’s Business News Network (start at minute 17).

Yet throughout the evolution of this awareness, the Wikipedia page on naked shorting has fought a steadfast rearguard action. It will be a matter for a future historian to reconstruct in detail, but at all times the thrust of that page has been to deny and deride the emerging understanding of the issue. Since the time when complete denial became impossible, it has labored mightily to minimize the problem of naked short-selling and all the attendant issues discussed in Deep Capture, citing every critic (Gary Weiss, Floyd Norris, Joe Nocera, and Holman Jenkins of the WSJ) while allowing only barest mention of the positive attention it has received from investigative journalists and economists.

I believe that the chief reason this happened was because Gary Weiss used the name “Mantanmoreland” (and later, “Samiharris”) to hijack the Wikipedia articles on naked short selling, Patrick Byrne, and Overstock.com (as well as the page on Gary Weiss himself). In addition, all the mechanisms within Wikipedia which are supposed to prevent such an act were subverted by Wikipedia’s elites on Gary’s behalf. Judd exposed Gary within Wikipedia, but Wikipedelites suppressed Judd’s evidence. When he began posting it off-Wikipedia on AntisocialMedia.net, Wikipedelites fought to make mention of “Antisocialmedia.net” or “Judd Bagley” a thought-crime within Wikipedia (under the spurious reasoning that someone mentioning either of them had to be a sock-puppet of Judd). Hence, no evidence contrary to official doctrine was permitted at “the free encyclopedia that anyone can edit.” However, evidence slowly circulated within the Wikipedia-in-Exile-community until the conventional Wikipedians began looking into Gary. Wikipedia ’s founder Jimbo Wales did everything possible to stop their investigation, although it turns out he knew all along that Judd was right. It has turned into a civil war within the Wikipedia community.

I turn take the paragraph immediately preceding this one, and serve its full story, cut into 14 bite-sized pieces, a-n.

The evidence:

a) Judd posted evidence that Gary was manipulating Wikipedia under the name “Mantanmoreland” (and later, “Samiharris”).

b) When confronted, Gary denied it, saying, “Similarly [Judd Bagley] continues to publish the lie that I am this ‘Mantanmoreland’ long after it was, again, denied by both myself and Jimbo Wales of Wikipedia.”

c) Judd sent evidence to a Wikipedia uber-administrator named “SlimVirgin,” who was posing as a neutral arbiter. However, as this demonstrates, when SlimVirgin received Judd’s evidence she immediately forwarded it to Gary (without even opening it herself).

d) A community debate ensued over whether Mantanmoreland was guilty of a Conflict Of Interest violation when he created and dominated the “Gary Weiss” page (i.e., whether or not he was in fact Gary Weiss). A highly regarded Wikipedia figure named “Cla68″ (apparently a former military officer living in Asia with encyclopedic knowledge of so many subjects that he is revered within Wikipedia) got close to taking sides against Gary. In a step that was extremely unusual given Wikipedia’s philosophies of transparency and strict retention of all sides of a debate, Wikipedia-founder Jimbo Wales personally intervened to delete the record of the debate. As Jimbo Wales wrote:

“The page contained wildly inappropriate speculation that a notable author was sock-puppeting. As I am sure you are aware, many authors have had their careers badly damaged by being caught sockpuppeting at Amazon, etc., and it is deeply wrong for people to ask me to restore a page with such speculations in Wikipedia after the claims have already been investigated and dismissed. If there are further problems in the future, there will be no problem restoring the article at that time. In the meantime, it is my position that MOST AfD pages for living persons or active companies should be courtesy blanked (at a minimum) as a standard process, and deleted in all cases where there was inappropriate commentary. This is not the current policy, but current policy does allow for deletions of material which is potentially hurtful to people.–Jimbo Wales 01:42, 13 November 2006 (UTC)”

e) Taking things to an Orwellian extreme the “ArbCom” (”Arbitration Committee”) attempted to pass a “BADSITES” policy prohibiting mention of “Judd Bagley” and “antisocialmedia.net,” the site Judd had started to post evidence as he gathered it (all evidence having been prohibited within Wikipedia itself). The debate ran for many weeks, but throughout it, it was prohibited even to name “Judd Bagley” or “antisocialmedia.net.” That is, for many weeks a debate raged in which the accused (Judd Bagley and his site antisocialmedia.net) could not be named, nor was the accused allowed to have a voice, nor were dissenting opinions permitted (on the grounds that anyone who wrote one must be a sock-puppet of the accused). All this happened on Wikipedia, “the free encyclopedia that anyone can edit.”

f) Throughout that process, anyone trying to mention Judd or Antisocialmedia.net, or positions supported by either, was banned as a Wordbomb sock-puppet (note the circularity of this position: WikiTruth demands that Goldstein be banned, and anyone sounding like he might agree with Goldstein will be banned, because clearly, he must be a sock-puppet of Goldstein. Hey, it worked in 1984, right?)

• “Any user who creates links to the attack site or references it (other than in the context of this Arbitration) may be banned.”

g) Eventually, this was actually proposed as a matter of official policy for Wikipedia (”the free encyclopedia that anyone can edit.”)

• “After warning, or without warning in the case of users familiar with the issue, users who link to the attack site or reference it may be blocked for an appropriate period of time.” (emphasis added)

h) As if that were not enough, in an attempt to prevent Judd Bagely from pointing out to observers the manifest circularities, fabrications, and sheer Orwellianism of the BADSITES debate, Wikipedia blocked Overstock and 1,000 homes around Judd Bagley’s neighborhood, as was exposed in this article that appeared in the well-regarded on-line British tech journal, The Register.

i) That effort collapsed of its own foul weight. As this other investigative piece in The Register exposed, however, it did spawn the creation of a secret email list for Wikipedia elites wherein they plotted how to shape the discourse within Wikipedia.

j) Just when you thought this story could not be any weirder, an email has surfaced that was written by Jimbo Wales in September, 2007 at the start of this conflagration, where he admitted already believing that Mantanmoreland was Gary Weiss (this exchange occurred on another of those secret elite-only email lists):

Mantanmoreland@gmail.com: “…I am not going to reveal my real identity to prove that just because Judd Bagley is making a fuss. Rest assured that after all that has happened I am more determined than ever to not reveal my real identity to any person associated with Wikipedia.”

jwales@wikia.com(Jimbo Wales): “I just want to go on record as saying that I believe the reason for this is that Mantanmoreland is in fact Gary Weiss.”

k) Despite this private admission, Jimbo spent the next four months publicly defaming Judd and intimidating anyone who explored Gary Weiss’s activities on Wikipedia. For example, he wrote to the renowned Wikipedian Cla68:

“I fear that you have been manipulated by lying stalkers and trolls, and I am happy to talk to you about it privately, but I am sick of the drama around this issue on this page, and it absolutely has to come to an end…– Jimbo Wales 01:32, 21 October 2007 (UTC)”

l) Despite Jimbo’s opposition (and in the face of his attempts to derail it), over the last two weeks the Wikipedia community has to its credit performed exhaustive analysis of the Mantanmoreland account (as well as “Samiharris”, an additional Gary Weiss sock-puppet) and come down overwhelmingly in favor of Judd’s original thesis.

m) Even in that setting, Wales again attempted to derail the process and deny his earlier recognition of a link between Gary Weiss and Mantanmoreland. Here Jimbo dances on an arcane postmodern distinction between “knowing” and “believing it is a fact that” (in this context it’s a distinction without a difference, Jimbo). Jimbo’s statement is a compendium of fallacies from Logic 101 (e.g., argument from authority, ignoring contravening evidence, ad hominem attacks, non sequiturs, and straw-man rebuttals).

“Because there has been unseemly and false speculation in some quarters that I know this (or related claims) to be true, and that I have admitted as such in private forums, it is important for me to state what I know and what I don’t know.

“Claims about Mantanmoreland being author Gary Weiss have been floating around for a long time. Various claims of ‘proof’ have been made, none of which I have found convincing. At times I have believed one way, at times I have believed another way. I have investigated the claims to the best of my ability and I have been unable to find proof one way or the other.

“An email I sent to Mantanmoreland and others has been widely quoted as evidence that I supposedly ‘know’ this claim to be true. Such interpretations are malarky, and most of the people making the claims appear to me to be acting in bad faith. What I said, at a point in time, was that I believed it to be true that Mantanmoreland == Gary Weiss. This was specifically in the context of a conversation in which I was trying to get more evidence… a proof, one way or the other. Me believing at a point in time in an investigation that something was true, is not the same thing as an assertion that it is true, nor of an “admission” or anything else.

“Mantanmoreland steadfastly denies being Gary Weiss. Ask him yourself if you want to know.

“Related allegations that I am protecting a ‘friend’ are nonsense. Mantanmoreland and I do not get along well at all.

“Related allegations that I have some vested interest in the underlying content dispute are even worse nonsense. I have no opinion about ‘naked short selling’. I have never sold a stock short in my life. I have no financial interests of any kind in this case. If you read anything otherwise, or hints to that effect, on the overstock.com blog or elsewhere, well, I don’t know was else to say but: nonsense. I think such allegations tell more about the people who are making them than anything else.

“Regarding the specific claim at issue here, whether Samiharris and Mantanmoreland are the same user, I can say quite firmly that I do not believe it to be true. I have interacted (argued!) with both users over an extended period of time by private email, and I have not seen any reason to think it true. The offsite ‘evidence’ relating to this comes from a highly questionable source, and furthermore strikes me as completely unpersuasive. For all we know, these are faked screenshots from someone who has engaged in a campaign of harassment and bad behavior (on-wiki and off-wiki) that has been really astounding to witness.

“I have reviewed my email archives to look for similarities between the users. I have examined email headers. I have looked for textual similarities, time patterns, etc. I see nothing to lead me to a conclusion that Sami Harris and Mantanmoreland are the same user.

“For these reasons, I do not believe it to be true that Mantanmoreland == Samiharris. –Jimbo Wales (talk) 02:19, 15 February 2008 (UTC)”

n) All but Weiss’s most dogmatic defenders were silenced, however, when a law student from Chicago published a graph showing the dates and times of all Mantanmoreland’s Wikipedia edits. In it, one can clearly note two things: the rich posting patterns of Mantanmoreland and Samiharris never overlap (statistically, highly improbable); and more importantly, a perfect “phase shift” of precisely the right duration corresponding to a period in which Gary’s own Forbes work revealed him to be in India.

Conclusion

That Gary Weiss is a psychopath and a Scaramouch should be clear, but this is incidental. Here is the moral of the tale: the great dilemma that journalists face is that they want to be first with a story, but most do not have the nerve to publish a story that is too far ahead of the pack. I believe Gary Weiss went to such effort to hijack these Wikipedia articles because somewhere, someone understands that professional journalists, much as they deride Wikipedia, will never depart more than a few degrees from a Wikipedia consensus. Thus if one can hijack a page so that it simply repeats the accusations of a few co-opted journalists, then rare is the new journalist who will come along and escape that equilibrium. Thus, by hijacking the Wikipedia consensus one can corral much of the industry of modern professional journalism (this is all the more reason why those few journalists who departed from that consensus over the last year, however meekly or bravely, deserve admiration).

The deeper question, then, is this: how many social institutions have failed when a “journalist” is manipulating the discourse within both the news and social media, and all the mechanisms that should curtail him are short-circuited? Or, more to the point of DeepCapture, trying to drown out a scandal while simultaneously working to manipulate social media from within the corporation at the heart of that scandal?

To let Forbes know how you feel about their columnist, write Managing Editor Carl Lavin at clavin@forbes.net.

=======================================================================

Postscript: There is a side matter that, in all fairness to Gary, I should mention to condition your reading of what I wrote about him. It is this: I have a lady friend who for 13 years has managed and been part-owner of a superb Italian restaurant in Manhattan. Her restaurant generally receives a Zagat’s rating of 23 or 24 (with a 24-rating being the threshold for the serous foodies). In fact, the restaurant is regularly one of the lowest-priced Zagat-24’s in Manhattan. Its reviews generally range from good to stellar. Weeks after Gary joined Forbes, a harsh review of her 10-employee restaurant appeared in Forbes magazine. I’m pretty sure that’s odd, too. Because the writing was florid and made no sense it is natural to suspect Gary of having written it (note to Gary: how does a pasta dish like orecchiette taste like it is from Bombay? And “branzino” is Mediterranean sea-bass, which explains why it tastes like fish. Also, describing a fish as “too fishy” is puerile.) Of course, it could have been just a coincidence that, weeks after Gary began his relationship to Forbes, the magazine suddenly felt the need to review a small Italian restaurant managed by the woman then displaying the unfortunate judgement of dating me (full disclosure: since then she has decided to display better judgement). I don’t really know if Gary was behind it, pursuing a personal vendetta by misusing his position as a journalist to hurt my magnificent lady friend.

But it sure is his style.

After that first episode with BusinessWeek’s Tim Mullaney in February, 2004, I did not hear from him for nearly a year. In January, 2005 Tim contacted us again. As I recall, he had nothing precise with which to attack me, but again flailed away with a set of “When did you stop beating your wife?” questions, delivered in a tone and manner whose message seemed calculated to convey that he already had a hatchet job written, and that by calling me he was simply checking off a box.

You ask, dear reader, “Why should I take Byrne’s word on that?” Fortunately you don’t have to, because in January, 2006 Tim came back for a third try, but made the mistake of committing it all to email.

First, he called Scott (our PR Director at the time, a kind and, as I wrote earlier, mellow Californian) asking (once again) precisely the same questions that some other reporters (about whom you will read later) had called that same day to ask. Given that there was no news and we were in a quiet period before announcing earnings in a few weeks, Scott made the reasonable inference that someone was feeding the questions to these reporters. He suggested to Tim he consider that possiblity: as is Scott’s style, he did so gently and politely. The following exchange ensued:

---

—–Original Message—–
From: Scott XXXXX
Sent: Thursday, January 05, 2006 1:40 PM
To: Mullaney, Tim
Subject: RE: quick check on something

Tim, the person who fed you this false information also called some other reporters (the usual ones). Thought you’d want to know.

Mullaney, Tim
Sent: Thursday, January 05, 2006 12:23 PM
To: Scott XXXX
Subject: RE: quick check on something

I wasn;t fed info, just asked a question. I didn’t know the answer so I checked. I’ll call you after a meeting, but you’re going to have to accept that I know a little accounting and am more than experienced enough to know what is happening here.

Tim Mullaney

—–Original Message—–
From: Scott XXXXX
Sent: Thursday, January 05, 2006 3:07 PM
To: Mullaney, Tim
RE: quick check on something

Ok. I was simply letting you know that a group of reporters from different outlets all contacted me at the exact same time about this particular matter. Two reporters confirmed that someone called them — and others in their organizations — spreading this rumor. (Interestingly, a couple said they just happened to look at our IR site.) I do appreciate that you checked with us.

I’m not an accountant — what do you mean by you are more than experienced enough to know what is happening here?

From: Mullaney, Tim
Sent:Thursday, January 05, 2006 1:10 PM
To: Scott
Subject: RE: quick check on something

I’ve been through companies battling with shorts before. I know how the media gets played. I know more than amply how to get beyond he-said, she-said. You may or may not know this, but I keep a Web stock model portfolio for BW that beats the IIX pretty consistently, and I also happen to be an attorney (so if, for example, we get into debating the rules around naked shorting, it’s not going to be Pat-says-this, David-says-this; it’s gonna be citations and cases, because I can read them myself and understand what they mean). If your numbers hold together and the model works and the management team is sound, you have nothing to worry about from me, so let’s put aside the “who told you that” aspect and just deal with questions. If someone feeds me bullshit, I am going to figure it out before publication. I have those tools.

Tim Mullaney

The following Tuesday, Tim Mullaney, Esq. used his tools to send questions for my reply.

==========================================================================

From: Mullaney, Tim
Sent: Tuesday, January 10, 2006 6:55 PM
To: Scott XXXX
Subject: Some questions to get started

Hi Scott:

As we discussed, here are some questions for Patrick and others at Overstock. This is most of my line of questioning, but not necessarily all the questions that may arise…

OK, here goes…

First topic: What went wrong in 2005?

1. Let’s walk through each of the four quarters. In the first quarter, there was a miss attributed in part to errors in buying offline media. What happened? Who made the buy? Which purchases didn’t deliver? How do you measure that: i.e. how do you know which buys to blame? What corrective actions did you take.

2. In the second quarter, what was the problem? What did you do about it? Did it work?

3. For the third quarter, IT was the problem. How long did that fester before it was recognized? Why did it take so long to be recognized, and then to be disclosed? (Orbitz.com, by contrast, reported a big problem with its Oracle databases in I believe 2003 within a day or two of the snafu). Why did it take so long to correct? Where was Shawn Schwegman during this period? During the extended leave Patrick has described on The Motley Fool, who was standing in for the CIO? With regard to the account of Shawn having sold stock to buy a home immediately upon his return, some questions. A. Who was the woman? B. Did they get married? C. Are they still together? D. Can we review the timing of exactly when he sold the shares, and from where he contacted his broker? E. What background in running large technology systems did Shawn have before joining Overstock? Before becoming CIO? When exactly did he go on leave, does he remain on leave, and who is fulfilling the CIO function? (I see you have an SVP for technology, but that is not quite the same title and the date of his assuming that role is not given in his bio).

4. In the fourth quarter, what was the source of the disappointing sales growth PMB mentioned on Bloomberg? How bad was it? Is the Street on target in putting full-year sales for 05 around $840M and a 15 cents per share loss? What will be the operating cash flow for the fourth quarter and cash position (exclusive of short-term securities) at 12.31?

5. Everyone knows online retailers are strongly cash-flow positive in 4Q, and then pay bills in January. This is not exclusive at all to OSTK. What will be the cash position at 3/31/06, when the short-term exaggeration of cash flow has been flushed out?

6. How is your liquidity? Can you describe the Asian-currency instrument that is tying up the $70 million-plus, or direct me to the correct pages in your SEC filings that describe this instrument and when it matures? Preferably, do both. There have also been some fluctuations in the interest rate and terms of your Wells Fargo facility. Please explain, and do they indicate, taken together, that Overstock has become a stronger or a weaker credit?

7. Seems as if marketing issues were a pretty consistent 2005 problem. Why? Some on the short side contend that the issue can be traced to having an underqualified executive running offline marketing. Without any reference to this person’s non-existent illicit past, why is someone whom Howard Lemcke describes as a former office manager for a small local business running such a critical function for a public company closing in on $1 billion in sales?

8. Why did gross margins stall? Why did you take marketing spend to 10% or more of revenues? Was this planned, or a function of revenue shortfalls relative to internal budgets?

9. Why did operating expense spike so? Technology spending? Several analysts told me they did not know tech spending was going to rise so sharply in 05, though none accuses you of lying about it. Did you change your mind? When? When was 2005’s tech spend approved, and why didn’t sell-side analysts, several of whom work for firms that had banked for Overstock, know about it? And was it a tactical mistake, or anything worse, not to communicate that change in strategy or tactics once you decided on it?

10. The cash consumption of the business multiplied during the first nine months of 2005, even relative to the size of the business. Why? Was that planned?

11. everal analysts blame 2005 on management’s inability to properly vet and manage up to a dozen or more major projects. Jewelry, travel, auctions, Club O, the software upgrade – it’s a longish list. How fair is this critique? Why did you take on so much? Did any of it succeed? An industry source says that tracking the serial numbers of diamonds convinces him that you are selling as few as 2 to 4 diamond rings a month, with at least $7 million in inventory on your balance sheet, representing approximately 2,700 to 2,800 stones. True?

12. Walk me through the metrics for emerging markets: How much travel are you selling (use GTS please; I am recognized as an online travel expert and have spoken at several PhoCusWright and Travelcom conferences)? Revenue from auctions? How many diamonds? And whither Club O and b2b? How much of your inventory bloat do the diamonds represent? Are you going to have to write them down? When?

13. Also, who runs each of these efforts? What domain expertise did they have, if any? Was a jewelry expert running jewelry? Did Ms. MacDonald Korth have any material background in online auctions? Who ran travel? And so on. Do they add up to a pattern, as sell side analysts contend, of having weak executives running key growth initiatives. What does that say about the executives who appointed them if this is, in fact, a consistent pattern? How exactly did Ms. Simon and Ms. MacDonald Korth get hired? Why was MacDonald Korth retained after a brush with the law reported in the Salt Lake City papers in 2002? (I am confirming the disposition of this case with the SLCPD, but I understand it was dismissed).

14. Scott Devitt, perhaps the most sympathetic buy-side analyst extant, says you missed all four quarters of 2005 relative to his forecasts (Yahoo Finance says you met the second quarter; Devitt says that was due to a non-recurring item). What does that say about management and control? Are you aware of any public company that has done that in recent years without management getting fired? Why shouldn’t you be fired, other than your ownership position in OSTK? Why has the board not insisted on better performance?

15. What was the purpose or meaning of the board changes? How much time is Jack Byrne spending at OSTK? Who reports to him? What are his functions as non-executive chairman of the board? Competitors suggest Jack is running the company’s day to day operations in tandem with Jason Lindsey. Please sort out who is doing what, and how much time Patrick is devoting to the Rocker litigation, the NCANS and related matters. Was Patrick, in essence, relieved of his CEO duties as some believe?

Section II. What is the strategy going forward?
1. What is the prospect for getting gross margins higher, especially in the part of the business where you take inventory risk? What do you say to sell-side critiques – and please note that this is a sell-side critique – that the prominent role of shopping bots in consumer electronics will constrict your ability to rebuild margins? Given the very tight competition in consumer electronics, how much margin wiggle room do you have in this sector? What percentage of your sales come from consumer electronics, which tend to be among your most expensive SKUs?

2. Explain the strategy for maintaining or expanding gross margins in the consignment part of the business. We may want to have me discuss this business offline with a more junior executive to prepare me for speaking with PMB, so I understand it better. To what extent does your fulfillment business compete directly with Amazon, and to what degree are you working distinct markets ( i.e. are yours closeouts and theirs not?). What is the difference between your margins and share in this business and theirs? How do you answer a critique that Amazon will be able to keep you from raising margins by setting the pricing standards for this market?

3. Aaron Kessler and Derek Brown – and to a degree Scott Devitt – all say you have to slow the rate of growth, cut marketing spending to 8% or 9% of sales, and try to achieve profits beginning in 2006. How, in fact, could you do that? To get opex under control, for example, will you have to lay off employees who fall under SG&A? How many? How, especially, do you do that when the consensus is that online advertising rates are rising strongly? What are your options, and your plans?

4. What margins can you achieve if you successfully do these things? What about in 07?

5. Posters to various blogs, including one claiming to be an insider, have raised the notion that management and Jack Byrne would like to take Overstock private, tune out the public market noise, and get the company fine-tuned in a more manageable atmosphere. Is management considering this? Has the board discussed it, in even a preliminary fashion? If you are not interested in such an option, why not?

6. Several people have expressed skepticism that such a buyout would be credit-worthy. Have you had any discussions with lenders? On the other hand, given the large management stake and close association with Scion and Fairholme, how much stock would you need to buy to buy the company, assuming investors recruited by management and the board participated?

7. Related question: Who runs Odyssey America Reinsurance, which bought 475,000 shares in the third quarter? Do its officers, directors or portfolio managers/analysts have any past or present ties to Messr. Byrnes, Macklin, Fisher or Lindsey? Can you describe any meeting with management Odyssey had before buying the position, or any outreach that Overstock, its directors, its bankers or other representatives conducted with Odyssey before or during Odyssey’s efforts to amass its position?

8. Describe your strategy for rebuilding trust and confidence among sell-side analysts.

9. As an out-year scenario, one can envision OSTK as a 1.5 billion to $2 billion company with perhaps 4% EBITDA margins. How do you get there? Can you get margins beyond that on 15% Gross margins? How? (Even assuming you can hit those revenue figures, which seems likely). Can you grow that much while trimming marketing? How long would it likely take?

Section III. The Disputes…
1. Let’s review numbers. Overstock has 19 million shares outstanding. The float appears to be 10 million shares. According to Nasdaq, the short position is 7.1 million shares. Why does Overstock believe that it is necessary to violate securities laws to short the shares. Why is a short seller who says “19 million shares, 10 million float, 7 million short, what’s the problem?” incorrect? Are these numbers incorrect? I believe I recall reading an assertion by PMB, though offhand I do not recall where, that the company knew in detail who owned its shares, who was allowing their shares to be borrowed and who was not, and that the then-existing position was impossible. Please review what you know and whether I correctly remember this statement, and what basis you might have for making such an assertion.

2. I’ll ask an open-ended question more generally…Why do you think shorts—and which ones – have violated Regulation SHO? Take all the time you need with this one; I want to understand your basis for this in detail, whether I end up devoting much space to it or just a little.

3. When during the Bloomberg interview were you cut off? I have a transcript that does not note any interruption (am checking with Bloomberg). Why do you believe this occurred?

4. I note with interest Bob O’Brien’s post about members of the Byrne family being unable to buy shares. Can you explain, and can you put me in touch with brokers and other third parties who can confirm this?

5. Who is Bob O’Brien? Is he really a penny-stock artist affiliated with Richard Mellon Scaife? Are you at all concerned that this association hurts Overstock’s reputation or credibility? Can you supply his contact information?

6. What is your basis for:
a. Asserting on Bloomberg that “some of these officials are mobsters”? Please explain also the remark about a body being found on you.
b. Asserting that 10 to 15 million shares of Overstock have been counterfeited? By whom? How do you know? Have you seen any forged certificates?
c. Asserting that journalists accept assignments from short sellers?
d. Asserting that Jim Cramer is an undisclosed investor in Rocker Partners?
e. Asserting that “a master criminal from the 1980s” is coordinating an attack on Overstock? Is this Michael Milken? Why does Bob O’Brien appear to think so, judging from his postings?f. Saying that you are afraid of the Israeli mafia? Have you received any threats? If so, describe. (Note: I have seen an excerpt of PMB’s remarks, but have not yet listened to the CFR webcast.) Or is this a more general observation that society should fear crime? If so, how is it even remotely related to securities violations surrounding OSTK shares? Do you have any expectation thatg. Asserting that Overstock would dominate the mid-priced diamond market?
7. Please explain the Bethany McLean e-mail. I’ve read Bethany’s story; I want to hear it straight from PMB.
8. How much time does PMB devote to NCANS, the litigation and related matters, including media appearances. He has acknowledged financially supporting NCANS; how much has he spent? Is it a distraction from work?
9. May I have a phone number or e-mail address for Mr. O’Brien and for Mary, whose last name escapes me, from NCANS.
10. There are not more questions about Gradient in part because I’ve read the filings posted on your site and understand your basis for those specific allegations.11. It appears from Bloomberg’s summaries of SEC filings that the top 35 holders own 99%+ of OSTK shares. If Bob O’Brien and NCANS believe so strongly that you have been wronged by the short side, have they bought any?

Section IV. Just for the Record…
1. How is PMB’s health? In comparing old pictures of PMB to more recent ones, a senior BW editor – i.e. not me - noted what appeared to be a significant weight gain that occurred within the last two years. Is this correct? If so, is it a function of stress? 

2. Is PMB manic depressive? Has he ever sought care or diagnosis for any mental incapacity? Is he on any psychoactive medications of any kind? (I mean no offense, and this is no more intrusive than Pat’s own public discussion of whether he uses illegal drugs).

3. Why is Jim Cramer referring e-mails from NCANS supporters to his lawyers? Has any counsel for Cramer contacted OSTK or PMB about pending or threatened defamation claims? E-mail trails I have read include Cramer asserting he may have a claim against OSTK or OSTK defenders at NCANS. Are these e-mails genuine? (I’m calling JJC as well).

4. Mark Cuban, asked in jest if he would trade PMB for Ron Artest, even up, responded in part: “No. Ron Artest knows what his issues are and takes medication.” Please comment. We know about Mr. Cuban’s short position in OSTK, which he puts at 20,000 shares.

Scott, let’s get it started. I don’t have enough space, most likely, for all this material. But I have to understand it deeply to write the strongest possible 1200-1500 words I can.

Best

t

Tim Mullaney
E-Business Editor, BusinessWeek
212-XXX-XXXX

=====================================================================

And here I’ll leave you with a cliffhanger. By what fiendishly clever method did I parry the tool that is Tim Mullaney’s knifelike journalism? Check back soon….

What is “2.0″?

In the 1.0 world, big corporations feed you products: Sears feeds you toasters, NBC feeds you sit-coms, The New York Times feeds you information to believe.

The 2.0 world is radically different. It is not about big corporations feeding you stuff, it is about peers creating things for each other. For example, on Youtube we can create and share content with each other, rather than relying on NBC for sit-coms. We create and share information with each other through blogs, message boards, Digg, Slashdot, and Wiki’s, instead of relying on editors at The New York Times to shape that information. To the extent big corporations have a role in a 2.0 world, their role is in enabling those peer-to-peer relationships.

Because 2.0 allows peer-to-peer interaction without the mediation of large corporations making decisions for you about what is good and bad, or true and false, the 2.0 world is intrinsically disruptive of traditional hierarchies. One disrupted hierarchy is that of journalist/subject. For example, normally, if you talk to reporters and do not say up front, “This is off the record,” then they believe it is okay to quote you on anything you say. (Not long ago, someone I know went to dinner with his circle of friends and acquaintances, which circle included an editor from a major publication. He said something over dinner that she later quoted, with attribution, in a story. He was furious. Her reply was that he had not said beforehand that the dinner conversation was off-the-record. His reply was that, when going to dinner with a group of old friends, he did not know it was necessary to lay down ground rules.)

The 2.0 world lets us apply to journalists the same rules they apply to us. For example, my theory is that when a discussion with a journalist is on the record for me, I should be able to treat it as on the record for the journalist as well. In the 1.0 world this would not matter, but in the 2.0 world it does. Occasionally reporters now say to me, “OK, this part is off the record,” a request which I honor, even when it has come from an antagonistic reporter. Most of the dirty ones, however, cannot bring themselves to request going off-the-record (I suspect because they cannot get their heads around the way 2.0 disrupts the normal journalist/subject hierarchy). This treating of journalists’ questions and comments as on the record is another habit of mine that infuriates a few journalists, including Tim Mullaney (as we shall see), but there we are.

In the case at hand, Tim could not claim that we were engaged in a casual social conversation. Because by sending me these questions Tim had begun an interview, and he did not designate it as off-the-record, I saw no reason I could not ethically make public use of his email. So about 36 hours after Tim sent his questions, I had written my responses, and rather than email them to him directly, I sent them to Bob O’Brien (about whom you will read more later), and asked him to post them on his blog, The Sanity Check, so Tim could read my replies there. I suspected Tim would be unhappy about this, but felt he had no grounds for complaint. Little did I know how unhappy he would be.

In any case, what follows was my public reply to Tim Mullaney, BusinessWeek reporter.

==============================================================

Dear Tim,

I appreciate your taking the time to write such an exhaustive list of questions. Since you did nothing to indicate the interview was off-the-record I am treating it as on-the-record (that is the journalistic convention, I believe) and so have reprinted your letter below. I trust also that you do not mind me responding in this public forum, as you also failed to stipulate otherwise (as some reporters have when they interview me by email).

My normal practice is to respond in CAPS interspersed among questions posed. As some, however, some have misconstrued that to mean, “shouting,” I will switch to italics to reduce any possibility of misunderstanding.

From: Mullaney, Tim
Sent: Tuesday, January 10, 2006 6:55 PM
To: Scott Blevins
Subject: Some questions to get started

Hi Scott:

As we discussed, here are some questions for Patrick and others at Overstock. This is most of my line of questioning, but not necessarily all the questions that may arise……(edited for privacy reasons, nothing of interest in this copy)

OK, here goes…

First topic: What went wrong in 2005?

1. Let’s walk through each of the four quarters. In the first quarter, there was a miss attributed in part to errors in buying offline media. What happened? Who made the buy? Which purchases didn’t deliver? How do you measure that: i.e. how do you know which buys to blame? What corrective actions did you take.

2. In the second quarter, what was the problem? What did you do about it? Did it work?

3. For the third quarter, IT was the problem. How long did that fester before it was recognized? Why did it take so long to be recognized, and then to be disclosed? (Orbitz.com , by contrast, reported a big problem with its Oracle databases in I believe 2003 within a day or two of the snafu). Why did it take so long to correct? Where was Shawn Schwegman during this period? During the extended leave Patrick has described on The Motley Fool, who was standing in for the CIO? With regard to the account of Shawn having sold stock to buy a home immediately upon his return, some questions. A. Who was the woman? B. Did they get married? C. Are they still together? D. Can we review the timing of exactly when he sold the shares, and from where he contacted his broker? E. What background in running large technology systems did Shawn have before joining Overstock? Before becoming CIO? When exactly did he go on leave, does he remain on leave, and who is fulfilling the CIO function? (I see you have an SVP for technology, but that is not quite the same title and the date of his assuming that role is not given in his bio).

4. In the fourth quarter, what was the source of the disappointing sales growth PMB mentioned on Bloomberg? How bad was it? Is the Street on target in putting full-year sales for 05 around $840M and a 15 cents per share loss? What will be the operating cash flow for the fourth quarter and cash position (exclusive of short-term securities) at 12.31?

For two years I have been telling owners that my goal is 60% to 100% growth at break-even plus-or-minus 1%.

In 2004 we grew 107% GAAP (84% on a Gross Merchandise Value basis) and lost 1% GAAP. Two for two.

In 2005 (as we have not formally announced it yet, I must be vague) we grew about low-mid-sixties percent GAAP and lost between 2% and 3% GAAP. One for two (I missed the second by between 1% and 2%).

Regrettably, much of the rest of your question concern either quarterly “misses,” which is odd, because my announced goals are always annual, or make the mistake of discussing “misses” in the context of numbers from Wall Street analysts which I have not only specifically disclaimed, I rarely if ever even read. (Look at it this way: suppose Joe announces, “Tim will score 20 points in a game of basketball this afternoon,” and you disclaim that, but go out and score 18 points, or even choose to play hockey this afternoon, have you “missed” your numbers? Why are they even “your” numbers? Aren’t they “Joe’s” numbers? In short, are “your” numbers the numbers that you announce as your own, or are they what get assigned to you by people who don’t have any idea what you plan on doing this afternoon?)

Your remaining questions concern precisely the kind of detailed financial projections which I do not release, or are inappropriate for you to ask (” Who was the woman? B. Did they get married? C. Are they still together?”)

5. Everyone knows online retailers are strongly cash-flow positive in 4Q, and then pay bills in January.

Actually, Tim, I was so surprised to discover how much of Wall Street overlooked that dynamic (at least while observing a competitor) that in the interests of conservatism I drew attention to the fact in my January, 2004 shareholders’ letter:“Consider a business that makes bricks, is running at break-even, and is growing. As it grows it will absorb cash to fund increased working capital needs. If it begins to shrink, however, it will release cash as working capital declines (ceteris paribus). Overstock is different: …. If we were at break-even but growing, our growth would generate float-cash. If we shrank, we would lose float-cash (again, ceteris paribus). This dynamic is the reverse of that displayed by the brick factory imagined above. It is not clear to me that Wall Street understands this odd dynamic of Overstock (or other Internet businesses whose ‘operating cash flow’ they model). That $40.3 million cash isn’t really ‘ours’: much of it is money we are just holding for other people.”This is not exclusive at all to OSTK. What will be the cash position at 3/31/06, when the short-term exaggeration of cash flow has been flushed out?Sorry, I don’t give out detailed projections, nor quarterly projections, and hence, by extension, detailed quarterly projections.

6. How is your liquidity? Can you describe the Asian-currency instrument that is tying up the $70 million-plus, or direct me to the correct pages in your SEC filings that describe this instrument and when it matures? Preferably, do both. There have also been some fluctuations in the interest rate and terms of your Wells Fargo facility. Please explain, and do they indicate, taken together, that Overstock has become a stronger or a weaker credit?

We do not have an Asian-currency instrument “tying up $70 million plus.” We have one that is tying up a lesser amount. I think our liquidity is fine.

7. Seems as if marketing issues were a pretty consistent 2005 problem. Why? Some on the short side contend that the issue can be traced to having an underqualified executive running offline marketing. Without any reference to this person’s non-existent illicit past, why is someone whom Howard Lemcke describes as a former office manager for a small local business running such a critical function for a public company closing in on $1 billion in sales?

Yes, when our annual growth is only 4X the industry’s instead of our customary 5X or 6X I consider that a “problem” too. Offline marketing was outstanding in 2005 by all measures (your assumption that this was a problem is false).

By saying, “Without any reference to this person’s non-existent illicit past” you have referred to this person’s non-existent illicit past, so I will address your point. Several years ago my friend and colleague, Stormy Simon, put a killer (David Meade) behind bars. For four years the police searched for a witness of whom they knew only a name, “Stormy” (which they mistakenly assumed to be a stripper’s nom du stage: they thus confined their searches to Intermountain strip joints). They never found Stormy, and while Stormy knew some key facts about the murder, she did not know that a murder had taken place. Stormy learned only when Meade found her to tell her that if she testified she “would end up face down in a field with a bullet in her head.” At the end of Meade’s trial it seemed certain he would walk out of court a free man, but in a John Grisham-like twist, Stormy surprised everyone by showing up in the courtroom. Her testimony put Meade away for life. She is a hero to the Salt Lake City homicide detectives and prosecutors, one of whom just wrote a book, “Death in a Fish Pond,” the climax of which is Story’s out-of-the-blue heroism (the only other witness, incidentally, has since ended up face down in a field).

The shorts have made legend out of this “ex-stripper executive” story, even though the crux of the story is that it was the police’s mistaken assumption about her name that caused them to miss her in the first place. They know it to be false, yet slimily, they continuously feed it to compliant reporters who dutifully bring it up, often in these “Without any reference to this person’s non-existent illicit past” ways. (For the record, I count several wrigglers and escorts among my friends, consider these women finer human beings than the average denizen of Wall Street, and would have no objection to hiring any of them. Unfortunately, they are all holding out for C-level titles.)

Lastly, I fail to see the relevance of the fact that in 1995 Stormy Simon was an office manager. Her “credentials” are that she has taken our unprompted brand awareness from low single digits to 29% in two years: judging from other of your correspondence, you seem a little hung-up on credentials (however, if you’re ever looking for a job just call: Stormy might be hiring).

8. Why did gross margins stall? Why did you take marketing spend to 10% or more of revenues? Was this planned, or a function of revenue shortfalls relative to internal budgets?

Gross margins went up 270 basis points in 2004, but “only” 170 basis points in 2005. I’ll put this in the bucket holding the “annual growth only 4X the industry” failure.

9. Why did operating expense spike so? Technology spending? Several analysts told me they did not know tech spending was going to rise so sharply in 05, though none accuses you of lying about it. Did you change your mind? When? When was 2005’s tech spend approved, and why didn’t sell-side analysts, several of whom work for firms that had banked for Overstock, know about it? And was it a tactical mistake, or anything worse, not to communicate that change in strategy or tactics once you decided on it?

Yes, technology spending was the reason. While some of it was unexpected, the primary reason that analysts did not know was that I did not tell them privately, because it is illegal to do so (that whole “Reg FD” thing, remember?) And no, I do not consider “not breaking the law” a tactical mistake.

10. The cash consumption of the business multiplied during the first nine months of 2005, even relative to the size of the business. Why? Was that planned?

Because we decided to beef up our technology tremendously. “Was that planned?” Yes, we never bought anything by accident. Was it anticipated? We did do more than we expected to do at the start of the year.

11. Several analysts blame 2005 on management’s inability to properly vet and manage up to a dozen or more major projects. Jewelry, travel, auctions, Club O, the software upgrade. it’s a longish list. How fair is this critique? Why did you take on so much? Did any of it succeed? An industry source says that tracking the serial numbers of diamonds convinces him that you are selling as few as 2 to 4 diamond rings a month, with at least $7 million in inventory on your balance sheet, representing approximately 2,700 to 2,800 stones. True?

The critique has some merit: many of the projects came off well, but I did bite off too much technology to chew in one year.

The diamond sales prediction is low. Yes, it is true that we have $7 million of diamonds on our balance sheet, though I am fine with this: they are not going anywhere, and they are holding value nicely (I just had a nice offer yesterday for the lot, actually).

12. Walk me through the metrics for emerging markets: How much travel are you selling (use GTS please; I am recognized as an online travel expert and have spoken at several PhoCusWright and Travelcom conferences)? Revenue from auctions? How many diamonds? And whither Club O and b2b? How much of your inventory bloat do the diamonds represent? Are you going to have to write them down? When?

Oh my, I had no idea I was addressing a “recognized … online travel expert” who had “spoken at several PhoCusWright and Travelcom conferences.” I’ll try to keep up.

“GTS”? Not sure what it is, but I will assume the “G” means, “Gross”: the business we bought had “GTS” of about $30 million (gross) in the year before we bought it. Beyond saying that I expect it will grow at the rate of the rest of the company or faster, I try to avoid making segment reports or predictions.

Auctions had GMV of about $30 million in 2005: again, I will not be reporting by segment going forward.
“Whither Club O and b2b?” Club O is great, b2b has morphed into a new tab (”Bulk Buys & Business Supplies”) last autumn.

Diamonds are $7 million, and no, I do not plan on writing down diamonds (nor any gold I find laying around, either).

13. Also, who runs each of these efforts? What domain expertise did they have, if any? In some cases, huge amounts, in some cases, little.

Was a jewelry expert running jewelry? Yes, if 20 years makes one an “expert.”

Did Ms. MacDonald Korth have any material background in online auctions? Yes.

Who ran travel? The two guys who built the $30 million travel business from scratch: I don’t know if they ever spoke at any conferences so I am not sure that they would qualify as “recognized online travel experts.”

And so on. Do they add up to a pattern, as sell side analysts contend, of having weak executives running key growth initiatives. What does that say about the executives who appointed them if this is, in fact, a consistent pattern?

You know, I have been thinking of replacing the whole lot of us, but it’s just so hard to find a team that grew an e-tailer that is a “public company closing in on $1 billion in sales” (your words above) in six years on $90 million of burned capital. There’s Amazon, of course: oh wait, they’d burned $2.5 billion or so by this point, and were losing hundreds of millions per year from operations. There’s Buy.com - oh, their S-1 shows they’ve lost $420 million, and they are about 40% of our size. uBid? Over half a billion, right? Etc. etc.

How exactly did Ms. Simon and Ms. MacDonald Korth get hired?
Ms. Simon came in for a temp job. I hired Ms. MacDonald-Korth from an analyst’s position at the Federal Reserve.

14. Scott Devitt, perhaps the most sympathetic buy-side analyst extant, says you missed all four quarters of 2005 relative to his forecasts (Yahoo Finance says you met the second quarter; Devitt says that was due to a non-recurring item).

Could be. I agree he is nice (and the most knowledgeable analyst I have met when it comes to the liquidation industry). In fact, I would add, the good analysts provide me a service. They come, we talk, I like hearing them and their thoughts. The better of them are like getting access to good consultants, without the ego problems: Devitt, Kessler, Doug from Lehman. Bill and Craig from Hambrecht. A couple more here and there. They know what is going on in the industry, and often either alert us to some technology that we missed, or have even pointed out a metric within our own business that bears study.

But that said, I cannot comment on their forecasts, as I don’t read them (and I doubt they read mine).

15. What does that say about management and control? Are you aware of any public company that has done that in recent years without management getting fired? Why shouldn’t you be fired, other than your ownership position in OSTK? Why has the board not insisted on better performance?

Ha ha ha ha. I’ve been trying to get fired for six years. Regarding the “done that,” stuff, I strongly doubt the board has read any analysts reports either. As far as the rest, see the second part of my answer to #13 above.

But as I have mentioned elsewhere, last summer I was actually planning on leaving this January for a much more interesting job. That is one of the reasons I began responding to the miscreants when I did: I wanted to flush the bowl before I left. Because the plumbing was not working as smoothly as I hoped, and because some operational issues sprung up, I have decided to stay, and that job opportunity has passed. I do notice this new element of the Party Line, and thank them for it. I truly have been trying to get out of here for six years. But now it looks like we are stuck with each other.

16. What was the purpose or meaning of the board changes? How much time is Jack Byrne spending at OSTK? Who reports to him? What are his functions as non-executive chairman of the board? Competitors suggest Jack is running the company’s day to day operations in tandem with Jason Lindsey. Please sort out who is doing what, and how much time Patrick is devoting to the Rocker litigation, the NCANS and related matters. Was Patrick, in essence, relieved of his CEO duties as some believe?

If Patrick was, he was prescient enough to announce it to the world months in advance, and for years, all the times he has explained why he thinks the roles of chairman and CEO should be split, and also, for the first three years of the business, when he asked his father to be chairman. The better question would be, “Why in its six year history were there three years when Jack Byrne was not chairman?” The answer to that is, “SOX.”

Section II. What is the strategy going forward?

As a prefatory comment, please understand that as detailed as I am about the past, I tend not to be too forthcoming on future strategy.

1. What is the prospect for getting gross margins higher, especially in the part of the business where you take inventory risk? What do you say to sell-side critiques and please note that this is a sell-side critique that the prominent role of shopping bots in consumer electronics will constrict your ability to rebuild margins? Given the very tight competition in consumer electronics, how much margin wiggle room do you have in this sector? What percentage of your sales come from consumer electronics, which tend to be among your most expensive SKUs?

Our prospects for growing gross margins are good. We have added 370 and 170 basis points in the last two years, respectively. I think one or two more years of >100 basis point growth is possible.“What do I say to sell-side critiques”? Again, I rarely read them, and certainly never journalists: too much blather and hidden agendas.

As far the “how much comes from which segment and what are your margins in it” stuff, I don’t disclose that

2. Explain the strategy for maintaining or expanding gross margins in the consignment part of the business. We may want to have me discuss this business offline with a more junior executive to prepare me for speaking with PMB, so I understand it better. To what extent does your fulfillment business compete directly with Amazon, and to what degree are you working distinct markets ( i.e. are yours closeouts and theirs not?). What is the difference between your margins and share in this business and theirs? How do you answer a critique that Amazon will be able to keep you from raising margins by setting the pricing standards for this market?

Hmm. Could be. Sounds like business.

3. Aaron Kessler and Derek Brown and to a degree Scott Devitt all say you have to slow the rate of growth, cut marketing spending to 8% or 9% of sales, and try to achieve profits beginning in 2006. How, in fact, could you do that? To get opex under control, for example, will you have to lay off employees who fall under SG&A? How many? How, especially, do you do that when the consensus is that online advertising rates are rising strongly? What are your options, and your plans?

Kessler and Devitt are as good as the game, and their instincts about marketing are probably right. Opex is already under control. Derek Brown cannot build a simple spreadsheet on his own (no kidding, that’s not hyperbole, I’ve worked with him, he needs staffers to do it) so I will not comment on his opinions.

4. What margins can you achieve if you successfully do these things? What about in 07? See above.

5. Posters to various blogs, including one claiming to be an insider, have raised the notion that management and Jack Byrne would like to take Overstock private, tune out the public market noise, and get the company fine-tuned in a more manageable atmosphere. Is management considering this? Has the board discussed it, in even a preliminary fashion? If you are not interested in such an option, why not?

Board deliberations are private, but I can tell you that I have considered it, but only from an economics perspective: the “public market noise” means nothing to me, as I would have imagined you guys would have figured out by now. (Actually, that is not completely true: all things being equal, I have a slight preference for the amount of consternation I am causing you fellows, and if nothing else, many, many people tell me that the homogeneity of the coverage by Wall Street is what has convinced them I am right about things.)

6. Several people have expressed skepticism that such a buyout would be credit-worthy. Have you had any discussions with lenders? On the other hand, given the large management stake and close association with Scion and Fairholme, how much stock would you need to buy to buy the company, assuming investors recruited by management and the board participated?

There’s no “close association” with Scion or Fairholme. How much would we have to buy? I don’t know. But personally, I think it would be so much more fun to leave a little stub in the public’s hands, for lots of reasons.

7. Related question: Who runs Odyssey America Reinsurance, which bought 475,000 shares in the third quarter? Do its officers, directors or portfolio managers/analysts have any past or present ties to Messr. Byrnes, Macklin, Fisher or Lindsey? Can you describe any meeting with management Odyssey had before buying the position, or any outreach that Overstock, its directors, its bankers or other representatives conducted with Odyssey before or during Odyssey’s efforts to amass its position?

I don’t recall ever hearing of Odyssey. Beyond looking at the page on Yahoo about once/year, I cannot ever recall looking at a list of who owns our stock in the 3.5 years we have been public.

8. Describe your strategy for rebuilding trust and confidence among sell-side analysts.

Continue focusing on building a real company that dominates the Internet and let the smart ones filter themselves out?

9. As an out-year scenario, one can envision OSTK as a 1.5 billion to $2 billion company with perhaps 4% EBITDA margins. How do you get there? Can you get margins beyond that on 15% Gross margins? How? (Even assuming you can hit those revenue figures, which seems likely). Can you grow that much while trimming marketing? How long would it likely take?

Since I think “EBITDA” is the stupidest thing I ever heard emanate from Wall Street (no small feat), I … don’t begin to know how to answer. I suppose I could go and recast all my numbers into EBITDA (or for that matter, “pro forma”) but I think I’ll do something more valuable with my time, like alphabetize my CD’s by, “Name of drummer.”

Section III. The Disputes…

1. Let’s review numbers. Overstock has 19 million shares outstanding. The float appears to be 10 million shares. According to Nasdaq, the short position is 7.1 million shares. Why does Overstock believe that it is necessary to violate securities laws to short the shares. Why is a short seller who says “19 million shares, 10 million float, 7 million short, what’s the problem?” incorrect? Are these numbers incorrect? I believe I recall reading an assertion by PMB, though offhand I do not recall where, that the company knew in detail who owned its shares, who was allowing their shares to be borrowed and who was not, and that the then-existing position was impossible. Please review what you know and whether I correctly remember this statement, and what basis you might have for making such an assertion.

Your recollection is false: I have no idea who is allowing their shares to be borrowed.

I believe someone is violating securities laws because: the SEC mandates that the SRO’s ( e.g., NASD) publish nightly “Reg SHO Threshold Lists” of companies that are seeing excessive failures to deliver; excessively failing to deliver violates securities laws; and Overstock has been on NASDAQ’s list for 47 of the last 50 weeks. See?

I also think it because I conduct little experiments like buying 50,000 shares, and I don’t get them for weeks or months on end, and when I ask around the BD the staff says things like, “Our trader says this is a hot stock and it is very hard to get delivery, and we could try to buy it in but if we did the stock we’d get would also be phony.” (See O’Brien’s blogs about this).

I’m not sure, but that doesn’t sound right to me. My recollection of markets re that they are places where people buy and sell things, not places where people buy and are promised things that don’t arrive. Call me madcap.

2. I’ll ask an open-ended question more generally…Why do you think shorts and which ones have violated Regulation SHO? Take all the time you need with this one; I want to understand your basis for this in detail, whether I end up devoting much space to it or just a little.

I don’t know who has done it. There: that didn’t take much time at all.

As far as the violation goes, I think it is likely some combination of 17a, Reg SHO, 10a-2, and 15(c)6-1.

3. When during the Bloomberg interview were you cut off? I have a transcript that does not note any interruption (am checking with Bloomberg). Why do you believe this occurred?

They cut away when I mentioned that the SEC has started an investigation of a research firm called Gradient. In case you missed it, here is the documentary evidence. Note the case number near the top?

Oddly, when the Salt Lake Tribune wrote a story about this it was picked up by no one else in the Wall Street media. I say “oddly” because when I mentioned in an August conference call that last February I had heard a rumor of an informal SEC enquiry into me that had gone nowhere then stopped, Carol Remond wrote a story about it (neglecting to mention that it was a six month old rumor of a dead enquiry that had gone nowhere), the WSJ gave it a headline (which they later retracted), and five or six others among the Wall Street media picked it up. Here we have documents demonstrating (as opposed to a rumor) that our opponents face an investigation (as opposed to an informal enquiry) that is current (as opposed to six months old and dead), and none of you fellows mentions it. How odd.

I know I was cut-off, first, because everyone I know who saw it called to tell me I was cut-off in mid-sentence, and then I watched it myself and, indeed, I was cut off in mid-sentence. It lasted about two minutes (the two minutes I was discussing this issue), then they cut back to me. However, Bloomberg has written me that it was inadvertent, that it only happened in some markets and not others, and all is Jake between us.

4. I note with interest Bob O’Brien’s post about members of the Byrne family being unable to buy shares. Can you explain, and can you put me in touch with brokers and other third parties who can confirm this?

Can I explain it? Yes, I think that some days most of the shares that trade are electronic counterfeits. O’Brien wrote at length and included some correspondence between me and my brokers, and you are welcome to that.

5. Who is Bob O’Brien? That is a deep question. He claims to be guy stung by some manipulative practices of hedge funds, and wants to do something about it.

Is he really a penny-stock artist affiliated with Richard Mellon Scaife? Bob’s response: “I have no idea who the hell that is.”

Are you at all concerned that this association hurts Overstock’s reputation or credibility? You and your friends seem to think that people care a lot more about what Wall Street thinks of them than people actually care what Wall Street thinks of them. Myself, I have a mild preference for making certain types of people there dislike me (mostly, bullies and lapdogs), but that’s just me.

Can you supply his contact information? Yes, on all his websites and blogs he cleverly disguises his email address as his email address: ncans.mgr@gmail.com

6. What is your basis for:
a. Asserting on Bloomberg that “some of these officials are mobsters”? Please explain also the remark about a body being found on you.

“Officials”? Does the transcript say that? May have been a typo, or maybe I was speaking too fast. I was referring to the fact that one does not have to dig very deep into Wall Street, especially the hard-core short-selling crowd, to find mobsters and mob connections. For example, the whole Lucky Lucianno, Genovese family, Bugsy Seagull, Meyer Lanksy, Vincent “Jimmy Blue Eyes” Alo.

Lanksy had a fence named Sol “Red” Steinhardt whom the Manhattan district attorney Frank Hogan called “the biggest mafia fence in America” (or words to that effect). Did some time in Sing Sing, while there, made sure his son went to Wharton. That son, Michael Steinhardt, started Steinhardt, Fine, Berkowitz (as one friend on Wall Street described them, “That’s when the bad guys showed up on Wall Street”). Financier for Marc Rich, who got busted trading with Libya and Iran, fled (with his buddy Pinky Green) the USA for, I believe, Zug, Switzerland.

Steinhardt got busted for trying (with another firm, I believe it was Caxton) to corner the US Treasury market in the early 1990’s, (making him a second generation racketeer) paid $40 million and “retired” (I believe the DOJ was seeking an injunction to keep him out of the markets). Stayed in contact with Rich, negotiated Marc’s pardon by Bill Clinton.

Rich is connected to Ronald Greenwald, who sponsored Evsei Agron (the guy who brought the Red mafia to the USA), who until he got whacked was apparently linked to the Genovese family, and so on and so forth.

You know, those guys.

Here, you may have missed the couple thousand stories like this:

By GREG B. SMITH
Daily News Staff Writer
Sunday, September 10, 2000

“They are getting more together,” said Barry Mawn, director of the FBI’s New York office. “They’re apt to be taking advantage of the good times. They know how we look at them. If they can branch out in a new area where we’re not as aware, that’s to their advantage.”

Investigators, prosecutors and regulators with the National Association of Securities Dealers and the Securities and Exchange Commission all agree that the mob has lurked at the margins of Wall Street for years.

At 17 State St., from 1993 through 1996, White Rock Investments was a cooperative agreement between the Bonanno, Colombo and Genovese families, according to Brooklyn federal prosecutors.

At 30 Broad St., in 1996 and 1997, Meyers Pollack Robbins was controlled by the same allegiance of the Bonanno, Colombo and Genovese families, according to court papers.

At 80 Broad St. and 84 William St., in 1996, First Liberty became a “joint venture” between the Bonanno and Colombo crime families, prosecutor Smith said.

And most recently, in 1998 through this June, DMN Capital Investments at 5 Hanover Square was run by the Bonanno and Gambino families, an indictment brought by a Manhattan federal grand jury alleges.

Investigators say Wall Street is a perfect spot for La Cosa Nostra strong-arm tactics: The mob is threatening white-collar yuppies, not longshoremen or Teamsters.

Assistant U.S. Attorney Patrick Smith, who is leading the 120-defendant mob-on-Wall-Street case for Manhattan U.S. Attorney Mary Jo White, said the money is funneled through Persico’s cousin, Frank Persico, a registered broker since the end of the last bull market in 1988.

Frank Persico, an alleged Colombo associate, along with Gallo and Vincent Langella, another reputed Colombo associate, represents the new breed of rising Mafia star, the wiseguy broker.

Etc.

Asserting that 10 to 15 million shares of Overstock have been counterfeited? By whom? How do you know? Have you seen any forged certificates?

I have gotten our NOBO/OBO lists out of the DTCC: they have around 15 million shares in the accounts, but only 9 million shares, so there’s 6 (there can be reasons for brief, temporary discrepancies, but not 6 million share discrepancies lasting for months).

“By whom?” As I said, I don’t know whom, but I think it is largely the broker-dealers who are really at fault: their stock loan desks over-locate stock to capture the high negative rebate, or they rent their market maker exemption to hedge funds by creating synthetic shorts, selling match puts, etc. (That may be why you see our biggest short sellers show up at times as longs, and why we suddenly see the prime brokerages showing up as owners, and not their asset management groups). And then there is the little fact of being on the Reg SHO list for 11 months when the maximum was supposed to be 13 days. And the fact that friends at broker dealers simply come out and tell me that the stock trading may be as much as 97% counterfeit at this point. And from the fact that a friend at a broker dealer called to tell me that the SEC had launched an investigation into their trading in our stock. oops! Did I let that slip?

“Forged certificates”? Tim, you really have some make-up work to do. Only 3% of stock is paper these days, and this is all being done electronically: I suggest you watch my PowerPoint primer on this at www.businessjive.com .

c. Asserting that journalists accept assignments from short sellers?

My basis for asserting that is that you see the same journalists attacking the same companies for the same shorts over and over, predictable as clockwork, then I talk to them and discovering how little actual research they have done (suggesting, of course, they are being fed the jargon that they often don’t even understand), the robotic parroting of the shorts’ party line, the fact that when the party line updates it does so among all these journalists instantaneously, and all journalists who call that day have it, and regurgitate it with a kind of calculated indifference to response that is supposed to suggest power and control but to me always conveys latent self-loathing, etc. etc.

You provided a nice example of this the other day. I will throw it in to clarify for you and all readers how the game is played. Several days ago, the shorts came up with a rumor and started spreading it to compliant reporters. The rumor was that Ray Groves, our new director, was resigning. I knew the rumor was false: apparently the shorts do not know that Ray and I are close, and over a decade ago I worked on three deals with him for about four years (in fact, it was largely the fruition of two of those deals that provided me the funds to start Overstock). However, in the space of eight hours we had five reporters call us to comment on the rumor.

You were, of course, one of them, and when Scott politely suggested that you not take what you were being fed at face value, you went ballistic over the suggestion that you had been fed this story, remember? Let me know if you don’t, I can happily republish them to jog your memory (but I advise against it: their pomposity [” You may or may not know this, but I keep a Web stock model portfolio for BW that beats the IIX pretty consistently, and I also happen to be an attorney (so if, for example, we get into debating the rules around naked shorting, it’s not going to be Pat-says-this, David-says-this; it’s gonna be citations and cases, because I can read them myself and understand what they mean”] makes your, “I am recognized as an online travel expert and have spoken at several PhoCusWright and Travelcom conferences ” stuff look like a paragon of Ghandiesque humility].

d. Asserting that Jim Cramer is an undisclosed investor in Rocker Partners?

I don’t believe Jim Cramer is an undisclosed investor in Rocker Partners: I believe Rocker is (or has been) a disclosed plurality investor in Jim Cramer’s company, TheStreet.com. I saw documents showing Rocker did it through his offshore funds with names like, “Helmsman” and “Compass”. You can find them on yahoo in 5 minutes.

e. Asserting that “a master criminal from the 1980s” is coordinating an attack on Overstock? Is this Michael Milken? Why does Bob O’Br