Those who would hijack the legal institutions shielding society from Wall Street perfidy must also hijack the political institutions providing them oversight, and hijack the discourse about those legal and political institutions, and hijack the social institutions mediating that discourse. The capture must run deep to be stable. So deep, in fact, that records of the past become untrustworthy.

The records of the past have in fact become untrustworthy. Stories have disappeared from databases and video clips from websites. It has happened as recently as this week: a clip to which “The Story of Deep Capture” linked as evidence stopped working. And just today has begun a new round of clogging the discourse regarding our claims (the simple difference between legal short-selling and illegal stock counterfeiting being too fine a distinction for almost any journalist to recognize when characterizing my position).

This chapter is meant to remedy that situation. It will serve as an archive of material to which the rest of DeepCapture may link, with little editorial comment. Those who wish to take issue with DeepCapture’s archiving and deconstruction of their copyrighted articles and videos (and, perhaps, emails) know where to find us.

On November 28, 2003 I appeared on CNBC for the first time, and the interview they conducted was perfectly fair. They asked me pointed, intelligent questions, and let me answer. We discussed sourcing and supply lines, as well as an issue related to Tiffany. They noted Overstock’s losses, but also noted that we had had a GAAP-profitable quarter (and questioned whether Amazon had or had not by that point). I was optimistic about the future, hoping that the trajectory that Overstock was then on (crazy-high growth with roughly break-even results, and a minimum use of cash) could continue indefinitely.

It did, in fact, continue for two years, through 2005. But around the end of 2005 our wings shredded and we had a tough two years getting things back under control. But at the time of this interview, things looked like they were on track.

On December 2, 2003, I appeared on Kudlow & Cramer for the first time. Larry Kudlow and Jim Cramer both seemed like fine, reasonable guys, and they asked intelligent questions. This interview was a condensed version of what it is like to walk into a hedge fund for the first time and explain one’s business.

After releasing Overstock’s Q4, 2003 results, I drove to a studio in Salt Lake City and appeared on Kudlow & Cramer for the second time (and third time on CNBC).

Interview: Patrick Byrne, chairman and CEO of Overstock.com, discusses the company’s revenues and earnings
836 words
23 April 2004
CNBC: Kudlow & Cramer English (c) Copyright 2004, CNBC, Inc. All Rights Reserved.

LARRY KUDLOW, co-host: Overstock.com reduced losses with 181 percent increase in sales. So what’s next? We’ve got Overstock CEO Patrick Byrne.

Patrick, welcome back to K&C. You had pretty good numbers. Your stock is on a nice little run here. So I congratulate you for that. But once again, once again, you are confusing the heck out of me and everybody else with your arguments about gross vs. GAAP. I’m not really sure why you continue to do this and what it is you’re trying to hide.

Mr. PATRICK BYRNE (Overstock.com Chairman & CEO): Well, thank you for having me back, Mr. Cramer.

KUDLOW: No, I’m Kudlow, actually.

Mr. BYRNE: Oh, I’m sorry.

MICHELLE CARUSO-CABRERA, co-host: I’m Cramer.

KUDLOW: And this is Michelle.

Mr. BYRNE: You know, I can’t see either of you, so I just…

KUDLOW: OK, fair enough.

Mr. BYRNE: What…

KUDLOW: But what about–you are the only CEO who publishes this confusing issue about gross vs. GAAP revenues and earnings. Why do you do it, sir?

Mr. BYRNE: No good deed goes unpunished. I’ve tried to explain the economics of our business. I wrote a three-page letter this time. Last quarter, I wrote a 12-page letter. Maybe it is confusing. I thought I’m trying to do a good thing. And really, you know, the letters that the shareholders see are pretty much the letters that the board see. It’s so they can really understand the business. But I can understand in today’s age why people take that for there must be smoke and mirrors going on. But so if you just want to look at GAAP numbers, we’ll just look at GAAP numbers.

CARUSO-CABRERA: And let’s talk about those GAAP numbers. Are you ever going to make any money here?

Mr. BYRNE: I think so, yes.

CARUSO-CABRERA: You’re not profitable yet. When do you expect to be profitable?

Mr. BYRNE: Well, we’ve been there for–been there, slipped back under. We’re minus 2.4 percent at this point. For every dollar we sell, we lose minus 2.4 cents. Put it this way. I can think of one other company, Amazon, that grew to half a billion dollars in sales in five years. This is our fifth year. We launched our site October ‘99, and I think we’ll do half a billion dollars this year. I think they’re the only other company that got there. I think we’ll–you know, they got there–the year they got there, they lost a billion and a half. We’ll get there this year. Yeah, we’ll make a million, lose a million. We’ll be within a half a percent of break-even.

KUDLOW: Well, yeah. You know, your business plan, you’re kind of the low-end eBay, if you will, or Amazon. But you got every right to do it, and it looks like you’re having some success. But what is it that you’re hiding on this? In other words, normal GAAP earnings takes revenues less expenses, brings down certain one-time charges, and that gets us to the profitable bottom line. Are you trying to say to us you’re not making as much in sales revenue or that you will have a better future? I mean, it’s utterly confusing to me.

Mr. BYRNE: Well, first of all, I’m all about GAAP. I have been so critical of the companies that do–I don’t believe in one-time charges; I don’t believe in EBITDA. If somebody talks EBITDA, put your hand on your wallet; they’re a crook.

KUDLOW: So if you say GAAP profit–GAAP gross profit is up 83 percent, isn’t that misleading, this idea of GAAP gross profit? As Michelle said, you’re not scoring profits yet. You may next month, but you’re not yet.

Mr. BYRNE: Larry, that’s…

KUDLOW: Quick answer.

Mr. BYRNE: …that’s…

KUDLOW: Quick answer.

Mr. BYRNE: Quick answer is that’s a silly question. GAAP has a concept called revenue, a concept called gross profit, a concept called net profit. Those are GAAP–a basic accounting course teaches that.

KUDLOW: But every company of the 5,000 reporters have net, not gross. Anyway…

CARUSO-CABRERA: You know what? We’ve got to go.

Mr. BYRNE: Well, we give them that, too.

KUDLOW: …I don’t understand it. I don’t understand it. Anyway, thank you for coming back.

CARUSO-CABRERA: Thank you.

Mr. BYRNE: OK.

CARUSO-CABRERA: Despite all that.

Mr. BYRNE: Thanks.

CARUSO-CABRERA: All right. Thank you very much, sir. Coming up next, the K&C and my view on today’s financial headlines. And later, we talk trucking e-commerce and outsourcing.

See it here.

On April 30, 2004, I went on Kudlow and Cramer. Larry Kudlow and Jim Cramer invited me on to discuss the upcoming Google IPO, which was being performed as Dutch Auction IPO (pioneered by Bill Hambrecht, and employed by Overstock in its IPO two years previously). Jim in particular seemed to welcome my explanation of how corrupt the IPO game is on Wall Street, and the virtues of this alternative.

In the summer of 2004 I went on Kudlow & Cramer to discuss 2004 Q2 results. We were still growing extraordinarily fast (88% in real terms, and gross profits were growing 106%). Our GAAP losses of $2.3 million on $87.8 million in sales for the quarter, or 2.6%, were in line with our strategy of maintaining high rates of growth while running roughly break-even, which I had publicly defined as +/- 1% on an annual basis. Incidentally, Overstock went on to finish 2004, our fifth full year in business, a half-billion dollar company, having shown real growth of 84% and gross profit growth of 158%, and losing $5 million (that is, running at -1% net income on a GAAP basis), and generating positive $25 million of operating cash flow.

Note that Jim Cramer reads from David Rocker here. Jim would later claim that he never met David Rocker except for one time in a grocery store.

On August 12, 2005, I launched an offensive to expose crimes and corruption on Wall Street that I believed were leading to the destruction of dozens (perhaps hundreds) of companies, the loss of countless jobs, the theft of billions of dollars, and quite possibly, a systemic meltdown. I did this with a webcast I called, “The Miscreants’ Ball”.

In this offensive, which I have called a “mitzvah”, “crusade”, and (when speaking of how my opponents view it) a “jihad”, I alleged that:

1) The SEC had grown inappropriately close to Wall Street (which SEC Senior Investigator Gary Aguirre and a Senate Judiciary Committee report have since confirmed);

2) The New York state Attorney General Eliot Spitzer was a corrupt finger-puppet (subsequent events have confirmed the corruption, and I am waiting for anyone in the press to see the “finger-puppet” implication of Spitzer’s favorite girl, Ashlee, living rent-free in the summer home of Spitzer’s biggest donor, Jim Chanos);

3) Certain hedge funds had grown inappropriately close to certain journalists of the financial press (which CNBC’s own Jim Cramer has since confirmed);

4) As a result of the indolence of the SEC, New York Attorney General, and financial press, a circle of hedge funds were taking down companies through:

• naked short-selling (which SEC Chairman Chris Cox has since confirmed);
• class action lawsuits by Milberg Weiss (which a DOJ indictment and a stack of convictions has since confirmed);
• “independent research” which was in fact bought-and-paid for (to which I already had a stack of affidavits attesting).

I hope, then, dear reader, that I do not assume too much when I write: perhaps in retrospect these claims are not so improbable as they may have first sounded.

The afternoon of my Miscreants’ Ball presentation, I was invited to go onto CNBC to be interviewed by Ron Insana, and the spinning began. Over time, that spin-job would be composed of at least five elements:

1) Referring to the Overstock suit against Rocker and Gradient as being about short-selling while glossing over the allegations regarding an inappropriate relationship between Rocker and the putatively independent research house (e. g., letting Rocker order, edit, preview, and front-run the reports on Overstock.com);

2) Referring to the case against David Rocker as being about naked short selling, when in fact the suit did not mention naked short selling;

3) Continuously failing to distinguish between short selling and naked short selling (which is like failing to distinguish between sex and sexual harassment);

4) Relying upon the preceding vaguenesses in support of a cover-up, that cover-up being that this was simply a fight about short selling, and which insisted upon the benefits of short selling (without distinguishing it from the illegal offshoot);

5) Overstock was not a good company, and therefore none of my claims about the capital markets could be true. (Yes, it is an obvious non sequitur, but not so obvious that it was not blindly parroted by more or less the entirety of the New York financial press, without a trace of critical thinking regarding its logic.)

The obfuscation that began in this interview would in time become a roar.

In the week after the Miscreants’ ball call and that day’s interview with Ron Insana, I was invited to appear to debate Jeff Mathews. Jeff is a deacon in his church and a four-flusher who published atrociously false statements about a female co-worker of mine (statements which Deacon Mathews quietly made disappear, without apologizing, once he learned he had misspoken), and a crony of David Rocker. Evidently Jeff appeared without any preparation, and judging from even Insana’s reaction, had his head handed to him (if I say so myself).

More interesting than Jeff’s smarmy squirming and Ron Insana’s reaction thereto, however, is Ron’s spinning, which has become more heavy-handed than it had been the previous week. Evidently the goal was to make unthinkable the simple truth that the lawsuit concerned illegal acts sworn to by witnesses and participants, and the broader claims about naked short selling concerned the health over hundreds of firms, the jobs and savings of millions, and the fragility of the capital market: thus, Ron seems to have been following instructions to insist upon a Party Line that “Byrne is suing because he is mad these people say mean things about Overstock, but if only he focused on his business” blah blah blah. As should be clear by now, that became the doctrinal truth that CNBC journalists, Bethany McLean, Joe Nocera, and Roddy Boyd were to reinforce in subsequent months with great fervor, so as to preclude the public from reaching any substantive understanding about the claims made or issues at stake.

On October 14, 2005, CNBC began covering the implosion of of Refco, a broker-dealer which was under criminal investigation for its involvement in naked short selling. With admirable aplomb, Patch met the spinning and downplaying with a simple statement: “OK, then just settle the trades.”