Re: 9/2/05 - [OSTK] Fool.com: Re: ceo is a character?
Author: Tiddman Number: of 938
Subject: Re: ceo is a character? Date: 9/2/05 9:37 AM
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I rec'ed your post. You're beginning to catch on.
I've been discussing this with various people for years. I have talked to "Bob O'Brien" on message boards for that long too (primarily regarding NFI). So I'm not "catching on", this is my 100th time around the track on this.
There are elements of truth in this whole wacky theory they have. I don't think it is unreasonable to assume that some hedge funds push the envelope a bit in terms of using press contacts, focusing trading volume on a single issue in ways that isn't tracked, etc.
I witnessed short attacks first hand with other stocks (ACAS, ALD, and FFH, to name three), and I became a shareholder just afterwards. The allegations were largely groundless, the press releases amounted to a smear campaign, and the hedge funds were obviously short, did not have to disclose their positions, and were able to use management's reg FD restrictions against them.
So, in short, I suspect some of the same things that these guys are saying.
However, the whole naked short thing amounts to exponentially greater allegations with exponentially lesser evidence. As I pointed out earlier, 1) OSTK shares, shareholders, and the company have not been harmed, 2) even if naked shorting is rampant, it doesn't explain how a stock can be manipulated for more than a few weeks, 3) Byrne's share count analyses don't point to any evidence of illegal activity since they can be explained via the legal system, 4) going after an analyst outfit that can quickly invoke first amendment rights is going to be fruitless, and 5) footing the bill for this nonsense (in terms of both money and time) onto OSTK shareholders is unfair to them.
Then there is a whole other level to this, the grandiose "puppetmaster" "Sith Lord" conspiracy theory, which adds yet another exponentially greater level of allegations with again exponentially less evidence. Really, it is like UFO sightings and theories that the man on the moon was faked. It takes the barest shred of evidence and develops an alternate reality around it.
If Byrne were a shareholder activist without any other responsibilities, like Bob O'Brien, I guess we could just sit back and watch and be amused. But he holds three executive positions at OSTK and has at least two other pursuits that take up his time and money (Worldstock and the naked short campaign). And OSTK is hardly a business that can run itself, and may be at the most important inflection point of its history. I don't think it is unreasonable for OSTK shareholders to have full time management during this time.
T
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Author: JamesWAllen Number: of 938
Subject: Re: ceo is a character? Date: 9/2/05 10:11 AM
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T,
However, the whole naked short thing amounts to exponentially greater allegations with exponentially lesser evidence.
You're making an assumption here, specifically that you have seen all of the evidence that Patrick has.
As I pointed out earlier, 1) OSTK shares, shareholders, and the company have not been harmed, ...
You certainly did not convince me. The 6.5m shares (65% of the float) is depressing the share price.
... 3) Byrne's share count analyses don't point to any evidence of illegal activity since they can be explained via the legal system, ...
OK. The company is perpetually on The Reg SHO list, indicating that there is a large short position where no shares have been borrowed, and you don't consider that evidence?
...4) going after an analyst outfit that can quickly invoke first amendment rights is going to be fruitless, ...
That would be quite damaging to their case if Patrick has evidence of fraud.
...and 5) footing the bill for this nonsense (in terms of both money and time) onto OSTK shareholders is unfair to them.
The lion' share of the bill will be paid by the lawyer representing Patrick.
Jim
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Author: Tiddman Number: of 938
Subject: Re: ceo is a character? Date: 9/2/05 10:28 AM
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However, the whole naked short thing amounts to exponentially greater allegations with exponentially lesser evidence.
You're making an assumption here, specifically that you have seen all of the evidence that Patrick has.
With regard to naked shorting (this is exclusive of the lawsuit against Rocker and the rest of the "Sith Lord" theory), it is all pretty much spelled out in detail on ncans.net. I encourage you to read this with an objective and unbiased eye and see if you can really draw the same conclusions from the information provided.
Bob O'Brien himself admits that the evidence is not conclusive, because we don't have enough data from the DTC to see how bad the fails really are. He says that, in the absence of conclusive evidence, he concludes that the theory is true and I conclude that it is false. I don't know what to say to that besides that he doesn't have sufficient basis for this theory.
You certainly did not convince me. The 6.5m shares (65% of the float) is depressing the share price.
Just to be sure we are isolating the issues, the 6.5M short position is part of the legal, established system, and has nothing to do with naked shorting or illegal activity.
Forgetting about naked shorting for a moment, consider 1) whether or not there is anything "wrong" with this short position, and 2) whether or not this has harmed the stock.
For #1, this is legal and part of the established system, so there's nothing wrong with this. It is just a stock that a lot of people want to short. There are a lot of them on the market.
For #2, 6.5M shares is 13 days trading volume. How many days of trading do you think were affected by the sale of these 6.5M shares? Remember that once the shares are sold short once, they don't affect trading any more. That is, if a short seller sold 500K shares short for 13 days, after that, trading will not be affected.
If you are suggesting that a large short position de facto harms a stock, then you are advocating abolishing short selling altogether, or limiting short selling to some predefined percentage of shares. If that is what you are suggesting, then you should think about the implications of that.
OK. The company is perpetually on The Reg SHO list, indicating that there is a large short position where no shares have been borrowed, and you don't consider that evidence?
Evidence of what exactly? Again, what is your definition of "harm"? Being on the reg SHO list means that there are fails for something like 0.5% of the company's stock. I do agree that being on that list for 6 months is a bit ridiculous. I don't know what the explanation for that is. There are simple and not so simple possible explanations. The fact that the DTC won't provide more data is surprising and unhelpful.
But the fact of being on the reg SHO list is simply not conclusive.
...4) going after an analyst outfit that can quickly invoke first amendment rights is going to be fruitless, ...
That would be quite damaging to their case if Patrick has evidence of fraud.
You will note that the lawsuit does not contain any allegations of fraud. It is really a "truth in advertising" lawsuit. I am no lawyer, but the lawsuit invokes the same statues that apply to, for example, advertising that you sell lawnmowers for $150 while the cheapest one you actually have for sale is $200.
The crux of the lawsuit appears to be that Gradient/Camelback published analyst reports with input from Rocker and others without disclosing that fact. This is not fraud, nor securities fraud, nor does it really have anything to do with short selling, or naked shorts, or a Sith Lord.
The lion' share of the bill will be paid by the lawyer representing Patrick.
Patrick said on CNBC is that this has already been very costly for Overstock. I don't have the quote, it was on one of the two CNBC spots he did just after the lawsuit. I will see if I can find it.
And besides the financial costs, I reiterate my concern about Overstock having part-time management. When Patrick held that first conference call, he started and finished the call with comments that this was the last he would say about this issue and he would turn it over to his lawyers. Since then he has gone on CNBC twice, contributed 5-6 posts to this forum, and is probably reading other forums. The issue is obviously stuck in his craw, and, in my opinion, is distracting him from what should be his #1 responsibility as the leader of a publicly traded company.
T
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Author: JamesWAllen Number: of 938
Subject: Re: ceo is a character? Date: 9/2/05 1:19 PM
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Tiddman,
"'However, the whole naked short thing amounts to exponentially greater allegations with exponentially lesser evidence.'
You're making an assumption here, specifically that you have seen all of the evidence that Patrick has."
With regard to naked shorting (this is exclusive of the lawsuit against Rocker and the rest of the "Sith Lord" theory), it is all pretty much spelled out in detail on ncans.net.
What does this web site have to do with evidence that Patrick may have?
Bob O'Brien himself admits that the evidence is not conclusive, ...
One of the things you get to do in a law suit is conduct discovery, which can produce loads of evidence. That's one of the reason I think Patrick made the right decision to sue.
Just to be sure we are isolating the issues, the 6.5M short position is part of the legal, established system, and has nothing to do with naked shorting or illegal activity.
You raise a good question: Doe the 6.5M share sold short include the naked ones? I don't know for sure, but I assume that they do because I believe they were part of a transaction that was recorded.
Back in 2003 Cree would occassionaly get flagged 'UPC Restricted" at my broker, meaning that more shares were sold short than could be borrowed and that shorting was not allowed (for retail investors.) The short position was around 30% at the time. I seriously doubt that the short interest can be much more than 30% without naked shorting. This is not evidence that would hold up in a court of law, but something worth considering.
Forgetting about naked shorting for a moment, consider ..., and 2) whether or not this (shorting) has harmed the stock.
Yes, it has. That's one of the purposes of shorting (i.e. "counterfeit" shares to drive the price down, thereby "harming" the stock.)
Remember that once the shares are sold short once, they don't affect trading any more. That is, if a short seller sold 500K shares short for 13 days, after that, trading will not be affected.
Of course not. The short shares are still part of the float and affect trading.
If you are suggesting that a large short position de facto harms a stock, then you are advocating abolishing short selling altogether, or limiting short selling to some predefined percentage of shares. If that is what you are suggesting, then you should think about the implications of that.
I pointed out that a large support position harms a stock but did not advocate abolishing short selling or placing arbitrary limits on it. However, there is an asymmetry between the affect of going long a stock and going short a stock. When you go long a stock, you increase demand but do not affect the supply, but when you short a stock you do increase the supply. That's why there are rules in place to contol shorting because without these rules there's nothing to stop the short from manipulating the price by aggressive shorting.
Being on the reg SHO list means that there are fails for something like 0.5% of the company's stock.
It means there are fails for more than 0.5% of the company's stock. We don't know how much because the SEC is proecting the shorts.
You will note that the lawsuit does not contain any allegations of fraud. It is really a "truth in advertising" lawsuit. ...
The crux of the lawsuit appears to be that Gradient/Camelback published analyst reports with input from Rocker and others without disclosing that fact. This is not fraud, nor securities fraud, ...
The suit alleges fraud under Californa statue 17200. The suit is about fraud, but not securities fraud.
"The lion' share of the bill will be paid by the lawyer representing Patrick."
Patrick said on CNBC is that this has already been very costly for Overstock.
Patrick pointed out that law suit had been costly to Overstock in his answser to one of the 12 questions. That doesn't mean that my statement is incorrect as this law suit could take years.
The issue is obviously stuck in his craw, and, in my opinion, is distracting him from what should be his #1 responsibility as the leader of a publicly traded company.
I feel defending the stock price is part of his job and applaud his efforts.
Jim
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Author: Tiddman Number: of 938
Subject: Re: ceo is a character? Date: 9/2/05 3:35 PM
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What does this web site have to do with evidence that Patrick may have?
You seem to be suggesting that Patrick has some additional evidence about naked shorting that is above and beyond what is in the general discussion about naked shorting and the web site that he contributed to (both financially and via content). I do not think that is the case.
He claims to have some affidavits from people supporting his lawsuit against Rocker & co. Once again, that lawsuit isn't about naked shorting.
He may have some other evidence, but he hasn't mentioned it. I am not sure what you're referring to. If you are just hoping that he is going to pull some star witness out of thin air to make this all make sense, good luck to you.
One of the things you get to do in a law suit is conduct discovery, which can produce loads of evidence. That's one of the reason I think Patrick made the right decision to sue.
For the umpteenth time, the lawsuit isn't about shorting, naked shorting, stock price manipulation, hedge fund trading, etc. If there is any "discovery" it will be about how Gradient/CamelBack analyst reports are advertised and written, and probably nothing about naked shorting, since it is immaterial to the case. However, I doubt it will even get to that stage because it will probably be dismissed and Overstock will have a counter-suit on their hands.
You raise a good question: Doe the 6.5M share sold short include the naked ones?
The 6.5M number comes from the brokers and such and is the "official" number, though it is just an estimate. So I believe the answer is "no".
I seriously doubt that the short interest can be much more than 30% without naked shorting.
Then you don't understand how shorting works. The short interest can legally be 150%+ of the available float because the same shares can be bought and borrowed again and again. In practice, the borrow probably starts to get tight at around 30%, but more is possible, and legal.
Yes, it has. That's one of the purposes of shorting (i.e. "counterfeit" shares to drive the price down, thereby "harming" the stock.)
It sounds like you are not clear on the difference between short selling and naked short selling. Short selling is not counterfeiting, nor is it illegal, and it doesn't drive the price of a stock down, and it doesn't "harm" the stock. Patrick is not attacking anyone for short selling, in fact he himself states that short selling is legal, honorable, and fair.
I pointed out that a large support position harms a stock but did not advocate abolishing short selling or placing arbitrary limits on it. However, there is an asymmetry between the affect of going long a stock and going short a stock. When you go long a stock, you increase demand but do not affect the supply, but when you short a stock you do increase the supply. That's why there are rules in place to contol shorting because without these rules there's nothing to stop the short from manipulating the price by aggressive shorting.
I assume you mean "short position". Again, you need to draw a distinction between "short selling" and "naked short selling". It sounds like you are saying that a short position (i.e. non-naked short position) harms a stock. That is an interesting thesis that could be discussed, though I don't think you'd find many that agree with you.
Short selling is legal and regulated, and a natural part of the market, and is totally different from "naked" short selling. If you believe that short selling harms stocks, and stocks should not be harmed, you are saying that you think short selling should not be allowed. That, too, is an interesting idea, though not realistic, and completely separate from the issue of naked short selling.
With non-naked short selling, the seller has to borrow the shares, pay their broker a fee for those shares, pay dividends on those shares, and suffer the possibility of unlimited loss. Short sellers also have to "sell on an uptick" which prevents relentless selling. A short seller can not simply decide to be aggressive and sell enough shares to drive down the price of a stock unless they have an endless supply of money.
We don't know how much because the SEC is proecting the shorts.
They aren't protecting anyone. The SEC and the DTC are different organizations. If anyone is hiding anything it is the DTC, not the SEC.
Patrick pointed out that law suit had been costly to Overstock in his answser to one of the 12 questions. That doesn't mean that my statement is incorrect as this law suit could take years.
It has already been costly to Overstock shareholders in terms of both dollars and time. If Overstock loses the counter-suit they'll then be on the hook for Rocker's legal fees. My point is that this has already cost Overstock shareholders, and has absolutley no benefit to them because they and the company have not been harmed.
I feel defending the stock price is part of his job and applaud his efforts
But the stock is only under attack in the imagination of Patrick, Bob O'Brien, and you. There are no facts supporting this idea.
T
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