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From: StockDung3/31/2006 9:56:22 AM
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Overstock And Patrick Byrne Continue Naked Short Selling Jihad / FinancialWire®

March 31, 2006. (FinancialWire) (By Ant & Sons) (NASDAQ: OSTK) president, Dr. Patrick Byrne, has continued a vocal public battle against a coordinated campaign of short sellers who have allegedly targeted his company?s shares.

March 31, 2006. (FinancialWire) (By Ant & Sons) (NASDAQ: OSTK) president, Dr. Patrick Byrne, has continued a vocal public battle against a coordinated campaign of short sellers who have allegedly targeted his company?s shares.

Beginning with a summer appearance on a CNBC ?Street Signs? segment with anchor Ron Insana, where Byrne claimed that his ?company has been attacked and I?m not going to take this lying down,? Overstock?s battle has continually stirred up controversy., which launched its website in 1999 to sell products at wholesale prices, now has annual revenues of approximately $500 million. In the financial world, however, the company is not as well known for its business as it is for the controversy surrounding an alleged campaign to denigrate the company.

During August 2005, Overstock filed suit against Rocker Partners and Gradient Analytics, alleging that the hedge fund and research company conspired to drive down the company's stock in a scheme known as naked short selling. Generally speaking, naked short selling is defined as selling a security short without borrowing the necessary securities to make a delivery, thus resulting in a failure to deliver the securities to the rightful owner. The main goal of naked shorting is to engage in harmfully affecting the stock price of a company in order to manipulate and create downward pressure on the security, affecting a company?s ability to raise money on the open market and ultimately profit from the downward movement in the company?s shares.

While the vast majority of the financial press has only recently started to document this, media coverage of this scandal has gained momentum. Late last year, on Fox News? ?Your World Today,? with market veteran Neil Cavuto, Byrne claimed that there were ?at least twelve Refco's buried in the system? that could result due to this ongoing problem of continuing fails to deliver, or naked short sales. According to the ?Financial Times,? Refco has over $10 billion worth of securities sold that have not yet been purchased. It is rumored that these dollar amounts represent massive naked short sales, currently under review by major regulatory bodies.

Why the Securities and Exchange Commission fails to take any enforcement action against those failures to deliver remains puzzling. In a November interview that Ant & Sons conducted with the Byrne, he said he wholeheartedly believed that ?this is not a hard problem to solve,? yet ?it is just a hard problem to solve without a couple hundred guys on Wall Street getting their asses handed to them.? While this may be considered blunt and extreme, it is Byrne?s way of calling things as he sees them. However, intelligent investors could argue that Byrne?s opinion on the lack of enforcement is quite accurate and is often seen as the unspoken truth on Wall Street. When asked about a potential solution to the problem, Byrne said in his plain spoken style that all that needed to be done was to ?force settlements.?

Naysayers tend to believe that Overstock?s share price troubles are its own fault, due in part to disappointing earnings results and its lack of a successful business model. Overstock has had many critics on Wall Street, including Jeff Matthews, an Internet blogger and general partner at Ram Partner Capital. He contends, like numerous other critics, that Overstock's allegations of a naked short selling conspiracy is only a cover up for the fact that Overstock's financial performance has not gotten better.

In response, Byrne says he acknowledges the criticism ?for taking my eye off the ball to pursue a jihad? with the deluge of complaints and lawsuits against Rocker Partners and Gradient Analytics. Some financial journalists have targeted Byrne for going off into the deep end. In a past conference call, he stated that he started to realize that ??there was actually some more orchestration here being provided, by what I am calling here the Sith Lord, or mastermind? that was a part of a conspiracy to manipulate Overstock shares. The lawsuit moving forward, however, is evidence that Byrne and company have confidence in their ability to expose the short selling ?Sith Lord? and might even prove this is not just another not just another stock market conspiracy.

The Overstock Naked Short Selling Jihad Timeline

March 24, 2006 reported that per the DTCC's March 10 Security Position Listing, there are 8,970,394 shares on deposit at the DTCC and that the NASDAQ reported short interest in of 9,578,481 shares for the same week. Therefore, Overstock's short interest is now 107% of the shares available to be shorted. Overstock CEO Patrick Byrne said that ?the decimal is not misplaced; we have cracked the speed of light.? In a knock to the Depository Trust Company, Byrne commented that the ?DTCC continues to maintain that their stock borrow program does not permit the creation of new or counterfeit shares: I think that's good, because otherwise this situation could be getting out of control.? These numbers released could add some more credibility to Overstock's lawsuit in which it argues that it has been the victim of Rocker Partners and Gradient Analytics, alleging that the hedge fund and research company conspired to drive down the company's stock.

March 13, 2006

In an article by (NASDAQ: TSCM) columnist Arne Alsin, he commented that his ?review of the financial statements and operating history of Overstock indicates that the negativity is overdone. This is a severely undervalued company. As I'll explain below, my minimum prospective value for Overstock shares is $92 in 2010; it currently trades at about $23.? The timing of this news is coincidental as recently disclosed that it had received a subpoena along with Jim Cramer, host of CNBC's ?Mad Money,? co-founder and shareholder of in relation to the Overstock lawsuit against Gradient Analytics. It is especially unique because Jim Cramer has often trashed the company and has advised many people to sell Overstock shares. Investors have to wonder why there is a change of tune from In reaction to the article, and as a result of an apparent short squeeze (note that 82% of Overstock?s float is short), shares surged $2.70 to $25.55 on heavy volume of 2.47 million shares.

March 17, 2006 announced a significant development in its ongoing lawsuit against Gradient Analytics and Rocker Partners and their respective principals: The Honorable Vernon F. Smith of the California Superior Court of Marin County issued a final ruling denying the defendants' demurrers and motions to dismiss under California's Anti-SLAPP law. Judge Smith wrote in the ruling, ?Rocker's alleged misconduct in conspiring with Gradient to issue negative investment reports is not, on its face, promotional in nature,? and that, ?The case law leading to the adoption of ?425.17 [California's Anti-SLAPP law] was addressed to commercial speech such as labeling, advertising and other 'marketing-related activities.'? Additionally, Judge Smith ruled that, ?The Anifantis declaration is sufficient prima facie evidence demonstrating Gradient's predecessor (Camelback) published 'special reports' in reckless disregard of the truth (i.e. with actual malice).? Jonathan Johnson,'s senior vice president, legal, said, ?This is a big win for Overstock, but not an unexpected one. We have said all along that the Defendants' motions were nothing more than a desperate attempt to prevent the case from ever reaching discovery.?

February 28, 2006

In response to the Overstock related subpoena, Jim Cramer, founder of, said on CNBC?s ?Mad Money? that the Securities and Exchange Commission took the action because, ?I said the stock was going lower. I didn't get the subpoena because I'm corrupt, I got it because I tried to get people out of a stock that we said was going lower, and went lower.? In addition to that, Cramer wrote ?bull? on what appeared to be the subpoena and then threw it on the ground as if to show he was above the law. Earlier on CNBC?s ?Kudlow & Co.,? Patrick Byrne, President of, made a guest appearance where he tried to explain his side of the argument. However, he was blasted by other guests and Larry Kudlow who believed Byrne was diverting attention from Overstock?s poor financial performance to focus on a short selling conspiracy. Finally though, Charles Gasparino finally got it when he tried to point out that the Overstock subpoenas ?are after evidence that the reporters are involved in the illegal scheme to manipulate stock prices.? While Byrne congratulated Gasparino for being the first CNBC reporter to ?get it,? the panelists went on to characterize the subpoenas as violations of freedom of speech, rather than focusing on how the individuals subpoenas are targeting a stock manipulation scheme.

February 27, 2006 disclosed that it had received a subpoena along with Jim Cramer, host of CNBC's ?Mad Money,? and co-founder and shareholder of In an article by Matthew Goldstein, senior writer of, he said that ?the subpoenas are related to a Securities and Exchange Commission investigation into allegations that Gradient Analytics, an Arizona stock-research firm, published bearish research reports at the behest of a group of short-sellers, including Rocker Partners, a minority owner of Goldstein said that will not comply with parts of the subpoena that demand communications between journalists and sources. This news comes on the heels of last week's subpoenas that were issued to Herb Greenberg of MarketWatch and Carol Remond of Dow Jones Newswires. That subpoena also sought telephone records, e-mails and other documents related to the online retailer, which filed a lawsuit against Gradient Analytics alleging a conspiracy to manipulate the company?s shares. Greenberg and Remond have written columns about Overstock. While investors who have followed the Overstock story are not surprised by these developments, Christopher Cox, Securities and Exchange Commissioner was apparently blindsided by the subpoenas. Today, he said that he had only learned of the subpoenas through news reports and that before it proceeds further, ?the sensitive issues that such a subpoena raises are of sufficient importance that they should, and will be, considered and decided by the commission.?

January 3, 2006

Overstock filed its responses to the demurrers and Anti-SLAPP motions which defendants Gradient Analytics and Rocker Partners filed. ?We alleged that the Rocker Defendants paid for and edited false and libelous reports from Gradient, pre-positioning themselves to profit from the expected downturn in Overstock's share price,? said Patrick Byrne, president of ?We do not believe the legislature of California, in passing the Anti-SLAPP statute, had in mind protecting libelous speech -- bought and paid for by those who stood to profit handsomely from this type of activity. We believe the case law is on our side and are confident we have adequately answered the motions to move this case forward.?

November 15, 2005

Gradient Analytics and Rocker Partners file motions to seek to dismiss Overstock?s complaint or strike the complaint alleging that the negative reports Gradient published on amounted to protected free speech under California's Anti-SLAPP statute.

August 11, 2005 announced that it has filed an unfair business practices lawsuit against Gradient Analytics, Inc., and Rocker Partners LP. In the civil complaint against Gradient Analytics, Inc., Rocker Partners LP., David Rocker, Marc Cohodes, and others, Overstock filed on the basis of unfair business practices. It was filed by John O'Quinn and his legal consortium, which has been instrumental in helping other naked short embattled companies in the past. The complaint alleges that Gradient Analytics, Inc., an influential company that sells reports and analyses on publicly traded companies to hedge funds, traditional mutual funds, and provides them to financial commentators such as MSNBC, is closely aligned with various stock hedge funds. The complaint goes on further by alleging that the Gradient and Rocker Partners LP, which is owned and controlled by David Rocker and Michael Cohodes, individually or through Rocker Offshore or Rocker Management, conspired to denigrate Overstock?s business in order to reap personal profits for themselves.

Ant & Sons LLC is an independent provider of investment commentary, research, news and analysis. Founded in 2003, the company produces a suite of free membership based services for use by professionals and individual investors. This includes monthly columns such as Face Off, The Real Deal, Takes a Look and Trader?s Corner. Other services include a weekly newsletter and analytic news related services through Analyst Scorecard, Ahead of the Ticker, Chart of the Week and Word on the Street. More information about the company, which partners with FinancialWire, can be found at

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