Word is out that Patrick Byrne personally got a subpoena from the Securities and Exchange Commission (SEC) on May 17, 2006, and the company waited until the filing of its most recent 10-Q to disclose it. This seems a bit unusual, especially given the fact that Overstock.com got a subpoena on May 9, 2006, and the corporation filed an 8-K on that same day to disclose the issue.

The first logical question is: Why did the company immediately disclose the corporation’s subpoena, while waiting nearly a year to disclose Byrne’s personal subpoena?

Well inquiring minds want to know, and three reporters inquired with Mr. Byrne himself. And Byrne sounds a little irritated in his response on the Overstock.com message boards. His comments include:

It was entirely predictable then, that today Roddy Boyd of The New York Post (a newspaper for people who move their lips when they read People Magazine), Floyd Norris of The New York Times, and Herb Greenberg have all contacted me today about a trivial non-issue but asking precisely the same question in similar language that makes the same false assumptions, almost as though it were orchestrated. How odd (Sloppy work, guys: write back for new instructions). Their sloppiness presents, however, a wonderful opportunity to display the corruption of our financial press, how it shills for the powerful financial interests which own it and against whose perfidy I have been gaining traction in exposing. I will tell you the facts, and then present their questions, to give you an idea of how this works.

I and some colleagues (both within and outside the company) have voluntarily cooperated with the SEC for over two years in a variety of investigations run out of several offices. I started doing this because I became convinced our capital markets are strikingly corrupt and have to be fixed or else our country may endure a 1929 event. All along I informed them that at any time I would be more than happy to provide them, in fact pleaded with them to examine, documentation of my various assertions. In addition, I repeatedly suggested to them that on any issue within the company about which they ahd any doubt or concern, to please permit me to provide them whatever documentation they needed in order to clear their minds and satisfy themselves that my motives were pure.

On May 4 of last year they took me up on my offer, sending a subpoena for an enormous volume of documents concerning my allegations regarding corruption on Wall Street, along with questions concerning issues about which I had repeatedly suggested I would love to clear their minds. Upon receiving that subpoena, we visited them to suggest that it was not sufficiently broad enough, that there were additional materials in my personal (not corporate) possession I would like to turn over that were not covered in the first, and to request that they request these of me (which they immediately did in a subsequent short, 150 word coda subpoena on issues that were generally a subset of the first, along with those additional materials we were suggesting we provide but were in my personal, not corporate, possession).

It is a little entertaining to read his assertion that he asked the SEC to “permit” him to provide documents. Up until now, I hadn’t considered that the SEC might “not permit” Byrne to turn over relevant documentation. Thank God Byrne had the sense to beg the SEC to subpoena him.

I just find it interesting that Byrne was celebrating (his word) and announcing one subpoena in a press release and SEC filings. Yet a second subpoena went unmentioned for almost a year, and Patrick Byrne is surprised that journalists and investigators wonder why?

Herb Greenberg of MarketWatch asks:

Why did Byrne wait nearly one full year to disclose that he, too, had received a subpoena?

Roddy Boyd of the New York Post writes:

An SEC attorney told The Post that while such disclosures should be made “promptly,” there was little chance that his actions would get him in trouble.

A former enforcement chief echoed this sentiment, adding, “If [the SEC] is looking at you, there [are] bigger fish to fry.”

For his part, Byrne suggested in a blog posting on the Overstock Web site that inquiries about the delay in disclosing the subpoena’s existence was further proof of the unethical connection between journalists and short-selling hedge funds.

Floyd Norris of the New York Times also asked Byrne about the subpoena, and his comments include:

I called Overstock this morning to inquire about why that was being disclosed now. Two other reporters asked similar questions, it appears. Overstock did not return my phone call, but it did denounce me for asking. A couple of hours after posting that denunciation on its Web site, Overstock.s Jared Matkin was nice enough to send an email to me pointing it out.

Read it, and you will learn that Overstock sees evidence of a conspiracy between me and the other two journalists, Herb Greenberg of Marketwatch.com and Roddy Boyd of The New York Post. (Mr. Greenberg, if you care, is a longtime friend. You can read his blog on this here. I don.t know Mr. Boyd.)

Mr. Byrne says he has talked about the subpoenas in the past, and says the S.E.C. issued the second subpoena at his suggestion, to get documents in his possession that were not in company files. But he does not address my question, which is: Why change the S.E.C. disclosure now?

Investigative journalist and Forbes.com writer Gary Weiss notes that Overstock published a Prospectus in December 2006 that stated “except as disclosed in the Prospectus, ” there weren’t any other “legal, governmental or regulatory actions, suits or proceedings pending…”There is also a certification by Patrick Byrne in the Overstock.com 10-K for 2006 that states the “report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report…”

I think it’s reasonable to suggest that an SEC subpoena received by Patrick Byrne, the CEO of Overstock, is both a legal/regulatory matter as well as a material fact.

How is Byrne going to defend himself against these facts? Simple. He’s already tipped us off in the Overstock.com message board posting:

Here is the punch-line: as a matter of law I must tread carefully here, but I can say that the heart of the investigation is not, I would suggest, Overstock-centric, but rather, concerns itself with a strange set of relationships among … Well, let me just say that the irony here is just delicious.

Did you catch that? He’s claiming that his subpoena wasn’t related to the Overstock.com SEC investigation. That will be his reason/excuse for not disclosing it in Overstock’s Prospectus and SEC filings.

Patrick Byrne may also claim that since the subpoena was to him personally, and the Prospectus and 10-K both apply to the company, then there’s no violation or lie.

The cool thing is that neither of these excuses really pans out for Byrne. The company has now disclosed the subpoena, so to say that “previously it wasn’t related to the Overstock investigation but now we’re disclosing it… ” Well, you get the idea.

UPDATE: I just read a message on the Investor Village discussion board for Overstock.com, apparently written by Patrick Byrne. He confirms the excuse for not disclosing the subpoena as I expected:

…the shills are now trying to make a case that I should have sent out a second press release when I received another addressed to me as a person, though it was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all. As though there is a world of difference between a subpoena addressed to our corporate lawyer asking for our CEO.s materials, and one addressed to me at our corporate address: I hate to disappoint, but that distinction is such a fine one it did not occur to me it was worthy of a second press release. The funny part is how it still has not dawnede on the miscreants that a fair bit of the material being requested by the SEC concerns THEM, not me or Overstock.

I bet Patrick wishes we’d all stop asking so many questions.