Perspectives on the SEC’s No Action Letter to (NASDAQ:OSTK)

The discussion of the Securities & Exchange Commission’s “no action” letter to (NASDAQ:OSTK) continues around the blogosphere.

On the one side we have the supporters of the company and wacky CEO Patrick Byrne (whos says “yipikaye” in response to the situation), who see this as a complete vindication of the company. They believe this means the SEC is blessing everything Overstock does, and giving the company its stamp of approval. They claim a no action letter is equivalent to the SEC finding “nothing wrong” with Overstock’s accounting and disclosures.

On the other side we have those who think the company’s financials and disclosures stink, and that Patrick Byrne and his executives are actively misleading investors. Those on this side acknowledge that the SEC’s no action letter is disappointing, but realize that it doesn’t mean there couldn’t be future action.

To Byrne’s supporters, the “other side” is really some grand conspiracy to “drive down the price” of Overstock’s stock price.

In Patrick Byrne’s world, the company’s stock price is a reflection of manipulation by naked short sellers. In the real world, the stock price reflects the fact that the company is poorly managed and has never turned a profit, and doesn’t look like it will ever do so. (Byrne, of course, is saying “this is our year” in terms of turning a profit, but I think we’ve heard things like that before.)

The company’s strong stock price in early 2005 was probably related more to the perceived potential of the company than anything else. The decline is most likely related to the company’s chronic poor performance and the consistent mismanagement by Byrne.

With regard to the SEC’s no action, Sam Antar says this:

Unfortunately for Patrick Byrne, it is not “Yipikaye,” just yet. The Securities and Exchange Commission’s no-action letters do not preclude them from re-examining’s financial disclosures and taking possible future action against the company and him despite the SEC’s recent actions. In other words, the SEC no-action letters do not close the book on’s misdeeds as Patrick Byrne has would like investors to believe.

The SEC has not endorsed accounting practices and financial disclosures. The SEC has not “sprinkled holy water” on’s accounting practices and disclosures as claimed by Byrne. Any representation by, Patrick Byrne, and its management to the contrary is unlawful and in violation of Section 23 of the Securities Act of 1933 and Section 26 of the Securities Exchange Act of 1934.

I respectfully disagree with the SEC’s no-action letters

I have great respect for the Securities and Exchange Commission, based both on working closely with them in recent years and as an adversary during my criminal Crazy Eddie years. However, my respect for the SEC does not preclude me from disagreeing with their actions and conclusions from time-to-time. In the specific case of, I respectfully disagree with the SEC’s no-action letters and I still adamantly believe that has violated many securities laws as carefully detailed and documented in my blog. Therefore, I plan on continuing my research and exposure of the false and misleading statements, inconsistent and contradictory disclosures, lies and misconduct by and its unprincipled management team.

Gary Weiss comments:

Well, the SEC did conclude its investigation, but instead made the judgment unanimous about itself — which is that it is utterly useless at protecting investor interests. The investor watchdogs have, for the umpteenth time, proved themselves useless by officially deciding to turn a blind eye toward Byrne’s serial lies and deceptions.

I take a little less of a grim view of the situation: I believe the SEC is stretched too thin to address all the cases that have merit. I wish they could investigate every company that misleads investors in the way I believe Overstock does, but they simply can’t. The SEC is constrained by budgets, personnel, and resources. I have to respect that, but I don’t have to like it.

It should be noted that the SEC has found problems with Overstock’s financial reporting in the recent past. So Overstock supporters can say that SEC blesses everything Overstock does, but that’s simply not the case.

I don’t know what caused the case to fall short in the eyes of the SEC. I doubt that any of us will ever know, as it is the policy of the SEC to not comment on these things.

It doesn’t mean that investors and the interested public should stop asking questions of Byrne and Overstock, though. While provides false and misleading disclosures about the company’s financials, people should keep scrutinizing them.

Zac Bissonnette points out that it really doesn’t matter what the SEC thinks or investigates, because Patrick Byrne, who regularly discusses EBITDA in relation to Overstock’s finances, once said that anyone who talks about EBITDA is a crook.

And those of us who ask the hard questions and offer our opinions and interpretations of’s financial statements should not be deterred by the cyberstalking, defamation, and lies of those in Byrne’s corner. We have a right to speak our minds, thanks to the laws of this great country of ours.

So Patrick Byrne continues his fight against naked short selling, which is what he thinks this is all about. (Nope… couldn’t be about the company’s misleading of investors!) And the rest of us shall continue applying professional skepticism to the repeated unusual and misleading disclosures by the Overstock spin machine.

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