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back to article Overstock's Byrne claims $5m scalp over short selling

Overstock.com CEO Patrick Byrne has said that hedge fund Copper River Partners paid his company $5m this afternoon to settle claims it colluded to denigrate Overstock and then profit from short positions in the etailer's shares. Byrne - who has waged a very public battle over Wall Street short selling - tells The Reg that the $ …

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go go Patrick

let me just say that I always believed him - common sense really to me, as a 25 year qualified accountant, 10 serving CFO & cynical Yorkshireman to boot

I hope he hangs everyone of these twunts out to dry

for all the reasons involving journalists (note the lack of 'profession' here) may I say that I NEVER EVER buy a newspaper, sorry Sarah but your fellow journos are a bunch of right &$%@s and should be on the dole & some in prison meeting a nice man in the showers who has has own bar of soap :)

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(Written by Reg staff)

Re: go go Patrick

Wow, an authentic 'cynical Yorkshireman', I didn't know there were any of your kind left... I mean, I'd ask for your autograph but I'm totally tongue-tied.

So, you indiscriminately slag off my entire profession and wish prison rape on them (well done on sneaking through a Bubba-free Bubba 'joke' there). This officially puts you on my List. Be civil, or be zapped, lad.

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Hmmm.

Where the norm is scum people can be forgiven for for assuming that all are scum.

All you have to do is look at the daily hate to see how bas your profession can get

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excerpted from: Army Of Avarice Plunders America Into Calamity That Did Not Have To Happen

excerpted from: Army Of Avarice Plunders America Into Calamity That Did Not Have To Happen

http://calltoaccount.wordpress.com/

A seminal element of the enormous problems we face today is little known or understood by the general public and most investors: the government’s abject failure, via the Securities and Exchange Commission, the agency charged with protecting investors and the integrity of the markets, to enforce the most basic, rudimentary business axiom: that when a buyer pays, the seller must deliver that which was sold-- (obliquely: he who sells what isn’t his’n, must make good or go to prison).

Congress passed the Securities Exchange Acts of 1933 and `34 to restore greatly diminished public confidence in our capital markets and mandated the SEC: “having due regard for the public interest, the protection of investors, and the safeguarding of securities, to facilitate the establishment of a national system for the prompt and accurate clearance and settlement of transactions in securities.”

But incredibly, the SEC has done just the opposite by empowering the Wall Street owned and operated black box Depository Trust and Clearing Corporation to create a Three card Monte style, bait and switch, non-settlement, non-delivery of securities system that facilitates the unlimited sale of securities that the seller is never required by anybody to actually deliver, so that the transaction is never properly “settled.” Known as naked short selling or failure to deliver, the scam has the same effect as counterfeiting because by definition and design, it dilutes the actual value of real shares by overpowering the natural laws of supply and demand.

The government’s long toleration of this fraud at the very core of the system has enabled Wall Street banks, broker-dealers and hedge funds running all kinds of hot, dirty and foreign money along with their own, to reap huge, often tax free profits, by selling and never delivering unlimited quantities of phantom stock, options, bonds, and even US Treasuries, with total impunity. Over the years, the practice has destroyed countless companies and crushed the hopes and dreams of millions of investors worldwide. Yet the SEC, self-proclaimed as “the investors first line of defense against securities fraud” and “the pre-eminent gold standard of enforcement of securities laws," has not brought a single enforcement action to stop it or punish the perpetrators. Is it any wonder the bad guys have come to feel invulnerable?

Even more incredible (and more profitable for Wall Street insiders), the "Stock Borrow Program" of the Depository Trust’s National Securities Clearing Corporation (NSCC) subsidiary allows the exact same parcel of shares to be loaned and reloaned over and over again to create an ever-metastasizing cancer of freely tradable "security entitlements.” These illusions of ownership overhang the market (just like naked shorted shares) artificially depressing share prices, They are not backed by an equal number of duly authorized certificates, and lack the full bundle of ownership rights a buyer thinks they are getting with their purchase (ie. voting rights, having dividends taxed at preferential rates, etc.). Most investors looking at their monthly statements have no idea they may not reflect actual shares bought, received and held in their account, but only IOUs from their trusty brokers, who consistently violate the duty of fair dealing owed their clients by failing to insist on delivery of shares they were paid a commission to purchase for them. That’s because to keep the scam going, the SEC-approved system quietly provides incentives for them not to.

For at least the past dozen years, evidence of gross conflicts of interest, fraud and derelictions of duty and principle up and down the political/financial food chain, have been abundant, but ignored. We are now living with the consequences. Deregulation and non-enforcement of statutes, rules and regulations designed to provide a measure of integrity, fairness and stability to banking and the capital markets (ie. limits on leverage, usury laws, separation of commercial from investment banking), and basic investor protections like those mentioned above, have been systematically ditched. Honest accounting standards that used to prohibit cooking the books, offshore special purpose vehicles, and performing auditing services while simultaneously giving tax avoidance advice were simply bought off. Time was, assets had to be marked to their actual fair market value (“mark to market”) instead of numbers totally contrived to enable insolvent banks to illude otherwise.

Basic principles of insurance law which require an insurable interest (ownership or risk of commensurate loss) in that which you insure (especially regarding someone else’s life or property), were legislatively trashed to enable rapacious, ethically bereft speculator banks and hedge funds to erect a new and extremely lucrative swindle using a kind of debt insurance product they called credit default swaps (CDS); so named, because by their rightful name, bond insurance, they would violate every state’s insurance laws and be void as against public policy without ownership of the underlying bonds—which was certainly not in the predators game plan. Parlaying never having to actually buy or own the underlying bonds along with the ability to broadly manipulate and malign their market price downward, made 40-1 leveraged CDS bets almost sure winners; outcomes dictated from the sidelines by greedy gamblers with little or no risk of commensurate loss. And they’re still at it today, unregulated, and operating in almost total secrecy; a Quadrillion Dollar Derivatives Death-Star that may well some day implode all.

Getting away with so many fraud-based practices for so long has emboldened the wrongdoers to almost obsessively believe they can get away with anything. Years of successfully bilking the public without fear of being caught or punished has imbued them with the kind of blinding arrogance that boldly shoves 3 pages at Congress and says with a straight face: Give us the dough ($700 billion)-- ours to do with as we will, free from liability or accountability—or else. And now they’re being rewarded for it with the biggest profits and bonuses ever. Why?

Why were all the safeguards so intentionally set in place in 1933 and 1934 abandoned? Because those empowered to make and enforce our laws— sworn to be good stewards of the public interest— allowed themselves to be seduced and inducted to serve private interests, not the least of which their own, courtesy of campaign contributions, lobbyist largess, lucrative job prospects, and other co-optive emoluments known anywhere else in the world as bribes. When will we learn that it’s not about politics, ideology or principle? It’s about the money! But drop me a line the next time you hear any corporate or mainstream media pro daring to talk or write about it in those terms. Somehow, as obvious and pernicious a role as it plays in our political process, discussing venal motive is off limits, part of the pretense that our elected officials actually represent the best interests of the people who voted for them (as distinguished from those who bankroll them).

The Wall Street banksters, of course, are not the only corrosive anti-social force at work here. Other divisions of the corporate kleptocracy Army of Avarice that dictate our national policy and exploit our national wealth (big oil, insurance, agra, pharma, health care, telecom, and defense) also spend generously to keep feasting at the public trough. It’s just that Wall Street’s misdeeds (even to the dismay of their co-predators) have brought us to the edge of a full-scale long term national/international disaster.

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Black Helicopters

Kelly

Don't go walking your dog alone Patrick. A few mil wont get them annoyed.. but a bil? At least you now have some extra cash for upgraded security...

Anonymous, for (not) paranoid reasons..

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Anonymous Coward

El Reg DID seem to think he was daft...

I remember the articles...the El Reg tone was definately a bit "jaundiced" towards Byrne being a bit sideways...

And now he's vindicated...

Hmmm.

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OJ?

Bernie Madoff wasn't the financial OJ Simpson then?

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Once Again, The Reg Gets There First

Perhaps you are right, Anonymous, that in the early days "the El Reg tone was definitely a bit 'jaundiced'" about me. But I give them major props. They were willing to listen skeptically, which is all we wanted.

The Register, especially Cade Metz (and even that Ashlee Vance character) were the first journalists, ultimately, who were able to work through the Chewbacca Defense. Before The Register came along, one aspect or another of this story had been presented to a couple dozen journalists, each one of whom let the flashing "Minding Closing Now" neon light block their view of the "This story hangs together so I better check the evidence" sign. So congrats to The Register. I'm glad that they started off as skeptics. At least they started off.

No kidding, for what it's worth, having dealt (somewhat notoriously) with my share of reporters, El Reg's are among the few journos who give me hope for the profession. Even though they sometimes write crappy things about me.

Patrick Byrne

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Joke

Good luck with the big case

I was thinking, as the whole naked shorting thing was part the global financial meltdown that effected everyone. That would mean your legal victories are really victories for everyone, which in turn would mean that we all deserve a share of $7 million-ish payouts so far.

So if you want to forward some that cash to my personal account, nothing excessive say 49%, I'd be grateful.

(I asked first, so don't anyone else try it on)

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To believe or not to believe in his insanity?

"We reached Copper River partner Marc Cohodes on his cell phone, but before we could ask for comment, he hung up."

This leads me to believe, and Im not sure why(:P) that he hung up after hearing "This is so and so from TheRegister and would like to ask you a few questi.....*click*" (thought granted it brobably came before the This is so)

"The Overstock.com CEO spent years warning that abusive naked short selling was threatening the health of America's financial markets, and in the wake of the Wall Street meltdown, many other voices - including Lehman Brothers CEO Richard Fuld - have acknowledged that the practice at least played a part."

As loath as I am to admit this, maybe he isnt as crazy as wel have been lead to bel....nah, apparantly that is crazy talk :) (exhibit A as proof: "According to Byrne, many of these journos were part of the alleged cabal trying to bring his company down")

Although I agree that this does paint him in a favorable light I do think that hes still insane based of OTHER things he has said/done in the past. I will give props when due but this doesnt outweigh all the stupid shit he has done.

On a side note ElReg, I will say that the biasness of the journos is apparent. Why not split who covres what business or type of article so we can get more views then one? (I'm looking at you Rik even though you have, on occasion, written some rather good articles on the bad points of Aple products).

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What's Changed or have the General Custers' just circled the Chuck Wagons against Incoming Tsunamis

"With a traditional short sale, traders borrow shares and sell them in the hope that prices will drop. A naked short works much the same way - except the shares aren't actually borrowed. They're sold but not delivered. The practice essentially floods the market with non-existent stock."

Phantom stock which is sub-prime toxic, and which the public have been loded with, with the Banking system exchanging it for trillions of credit and quantitatively eased cash. Ergo is the National Debt created a phantom event to ensure continued slavery of the ignorant masses to fantastic, easily created paper wealth heroes.

The Banking System has no product to Sell other than he Creation of Enslaving Debt and no Money of its own to Spend other than that invented out of thin air and valued against nothing, but just loves to gamble and lose All in their Ponzis.

Or would you like to disagree and suggest that it is not a shakedown protection racket with well-suited crooks cooking up schemes to keep themselves in business making nothing unless they offer Cash to Spend to Customers to make Currency Flow and Create Industry in those Sectors in which the Cash and Credit is Spent.

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back?

Oh good, amanfromMars has found its drug stash and is back to normal. Welcome back to active duty.

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@Patrick Byrne

Good luck, sir.

Take the buggers down.

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Anonymous Coward

FAILED naked short selling

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle

"At one point, investors claimed ownership of nearly 42 million shares in Overstock — even though fewer than 24 million shares in the company had actually been issued."

Not only did Wallstreet *not* borrow the stock they were short selling, they even failed to buy it when they needed to hand it over. And in this bizarro world where there were nearly twice as many shares being sold as existed, they could drive down the price so that the short selling almost always succeeded using stock they didn't own and couldn't borrow or buy.

----

The current financial crisis has increased the US suicide deaths by 5000 in on year alone. Wallstreet killed more Americans than Bin Laden. (Based on the LA 2008 stats).

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Go

Bravo, Mr Byrne!

10-1 that the targets of your "OJ" suit will try to settle also. I'm glad that in large measure you're being vindicated, and salute your determination to stick to your guns in the face of some pretty abusive commentary. Good luck with the big one.

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Welcome

Good Job

Tell you who needs cash.. Wikipedia. Might be a good time to buy back your article from Mr. Weiss, may he rot in whatever hole he currently resides. Oh he went into journalism.. maybe a quiet word with his boss might help.

As a country swimming in the mire of toxic debt slurry I wish it hadn't taken complete financial meltdown for you to get your point across.

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Well done...

All round. I've been on Patrick Byrne's side since El Reg managed to teach me how naked short selling works. The plus side is that now I know what's happening at the end of Trading Places.

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WTF?

One thing still puzzles me

Who buys all these shares that don't exist?

And why?

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Boffin

Counterparty

People who think the price will go up. In any stock-market trade it's a transaction between the buyer (who is looking for the price to rise) and the seller (who thinks it will fall, or at least not go any higher).

Naked shorting is so dangerous because it allows one to flood the market with an unnaturally large number of 'sell' orders, which depresses the price excessively. I'm a staunch defender of normal shorting (where one borrows a stock to sell, with the expectation of buying it back at a lower price), because it can act as a depressant on an overheated market, but in that case the effects of it are limited by the number of shares available.

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re: One thing still puzzle's me

The problem is that there is no enforcement of the borrowing. In other words, a company says that it needs to borrow stock. The deal is allowed to go through without any framework to check to see whether or not the stock actually exists and is available for the borrowing. According to Rolling Stone, that's how Lehman Bros. was killed.

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Grenade

Vindicated? - Hardly

So a liquidated company starts settling o/s lawsuits - hardly a ringing vindication of Byrne's position - more like the creditors of a bust company getting out while they can.

Some company in a notoriously unstable financial environment complains that its share price is yo-yoing? - I think I might have a pretty good idea why that might be - and its got nothing to do with the piss-poor returns that could be made on speculative shorting some crappy little web company.

How does some guy running an etailing outfit become the poster boy for all you anti-establishment rebels?

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With all this insider crap

going on with the big boys, how' are the little guy's ever going to get an honest shot at anything?

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Re: One Thing Still Puzzles me

Well done Wall Street: banning naked short selling only 40 years after the Australians realised it was a form of fraud.

This was at the end of the 1969/70 mining bubble which was due to speculation in mining companies waving over-optimistic mineral surveys. The full gory details are here: http://en.wikipedia.org/wiki/Poseidon_bubble

Here's how naked shorting works. Some wide boy who thinks a stock will drop, usually because its over-priced junk or because he and his mates have formed a concert party to make it do so, sells a load of stock he hasn't got with the expectation that he can buy the scrip cheaper before he has to deliver it, thus making money for nothing.

Exactly the same thing that happened with naked shorting of Overstock happened in 1970 in Australia, when more shares were short-sold than existed. When the account ended and the short sellers failed to deliver, the stock (Poseidon?) was suspended and all short sellers were forced to complete their transactions by paying whatever the equity owners demanded: this had the benefit of bankrupting many of them. Once all trades had been completed naked shorting was made illegal and the suspension lifted.

A great pity the SEC didn't do exactly the same to its naked short sellers.

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Salute to Mr. Byrne

You may be a nuthead, but you were still right - and unfortunately we are all now paying the price.

I would like to see all those journos who bashed you incessantly - and especially Mr. Weiss - lose their jobs and be banned from ever putting pen to paper for deceitful conduct and not having any journalistic integrity.

And since it is Christmas soon, I'd also like all politicians to tell the truth and only the truth.

Oh, and could I have some fries with that ?

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Anonymous Coward

Grats

Congratulations Patrick. I've been following your crusade for a couple years lurking in the short selling wikipedia talk page, and it's good to see the story getting a decent ending.

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Knowledge is Power ..... which is why some info and intel is denied you.

"All round. I've been on Patrick Byrne's side since El Reg managed to teach me how naked short selling works." .... Andrew Moore Posted Wednesday 9th December 2009 11:29 GMT

For any who want to know how the scam works, here is a very clear program well worth a'watching .... http://www.businessjive.com/

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points

I remember when El Reg was roundly vilifying Byrne, and basically agreeing with the pieces by Weiss that Byrne was a nutcase. I still don't recall seeing an abject apology by El Reg for being ever so wrong about the whole thing. Still, if Mr. Byrne is happy with how El Reg handled it, who am I to begrudge him his forgiveness.

Unfortunately that's what journalism today seems to be all about. Vicious libel hidden behind "freedom of the press" and a few weasel words ("allegedly" is my favourite, as in "the bloggers at El Reg are allegedly nothing more than a bunch of overpaid scandalsheet mongers"), followed by nothing so crass as a public apology for having dragged a person's name through the mud when that person is proven correct.

But hell, that's entertainment.

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disappointing journalism and writing

1) how can you flood a market with anything non-existent? Perhaps this was supposed to be amusing but it reads more as idiocy than comedy.

2) What's wrong with naked short selling? Nothing. If you contract to deliver a share you don't own, you are on the hook until you do deliver it. It's no worse than contracting to pay money you don't have - which the City does all the time, indeed, which banks do whenever they offer instant access accounts. You could achieve the same result by spread betting with no requirement for physical delivery. It would still move the market price.

3) the legal action is over insider market manipulation, which is illegal in most markets. Market manipulation would be illegal with "naked long buying" too! Simply taking large undisclosed positions in companies can be market abuse.

4) Disclosure of short selling should not be controversial - but it would hardly help the company in question since it would make the short view more public.

5) Lehman deserved to go bust. As do the rest of the wall street bank and most high street banks. Fractional reserve banking is a fraud and leads to the mis-pricing of money (by artificially lowering the long-term interest rate at which capital is available, by luring in deposits with the promise of instant access which is impossible). If you want to complain about something, complain about Venetian/Genoese banking practices and maturity mismatches. Or stick to writing about IT.

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PT

@Richard30

"1) how can you flood a market with anything non-existent? Perhaps this was supposed to be amusing but it reads more as idiocy than comedy."

Surely that's obvious. It's a futures market - you don't have to deliver anything today. Nobody knows whether the shares really exist until settlement day, and by that time - if things go according to plan - you will have placed a buy order for the exact same number of shares at a lower price. Meantime, the fact that your shares may really exist drives down the price for everyone, by supply and demand. On settlement day, the aggregators add up the totals and find you neither have to deliver nor accept any shares, but you are owed a sum of money for the difference in price.

"Naked long buying" works exactly the same way and is not illegal - it is just offering to buy shares you have no money for, and selling them before settlement if they go up. Stockbrokers offer this service all the time to creditworthy customers. The difference is, they tend to make sure you have collateral they can liquidate if things go wrong. This is called "making a margin call" and is the reason people jump out of tall buildings when markets crash.

Short selling can go wrong, too. Famously, William Sharon's Bank of California went bust in 1885 because he was short in mining shares on the day that a major silver strike was announced. He jumped off a bridge.

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FAIL

Ooops

Beg pardon, it was William Ralston's Bank of California, and it collapsed in 1875 not 1885. Sharon was his even-more-evil partner who had given up private plundering and gone on to greater opportunities as a US Senator.

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