Byrne speaks about relationship with "Bob O'Brien":
boards.fool.com
Dear Fools,
For some months some have claimed that Bob O'Brien have had a deeper relationship than I was willing to confirm publicly, that in fact, O'Brien's presence on our January earnings call was carefully scripted. Some have also said that he is my Svengali. Others, that he does not really exist, that “he” is just me with a voice-altering technology. All of these are false, and while I can understand that these are reasonable thoughts to have, the insistence with which some have argued this point has caused them to mislead. I will set the record straight here as best as I am able to do from memory (as I assume I may be deposed someday I do not want to research this and thus muddy my true recall: besides, I am thousands of miles from any records).
At the end of October, 2004, I had a conference call on which I invited David Rocker to join. He did, and it went badly for him (I heard later that he yelled and threw an ashtray in his room at the end of it). Within a few days I got word that a “Bob O'Brien” kept calling to tell me something. I forget why, exactly, I chose to take his call, as I receive hundreds of phone calls that I must deflect (perhaps Bob emailed me first, but I am not sure). In any case, I agreed to speak with Bob. I happened to be home that afternoon packing for a trip, and as I packed I listened to him speak about foreign exchanges, failures-to-deliver, a ring of journalists who did the bidding of a certain hedge funds, Regulation SHO, and so on and so forth. It was mostly gobbledygook to me, except for his information about Mr. Rocker, whose public behavior I found impolite and disturbed. After an hour I got off the phone: as I did, Bob, who probably sensed the brush-off, told me to be on the look-out for certain journalists to call and do hatchet-jobs, our company to appear on numerous foreign exchanges, our company to appear on the Regulation SHO threshold list, and to expect some frivolous government investigation to be started against us. We hung up, and I do not remember giving it much of a thought again (although within a matter of days I did hear from every one of the journalists he had predicted would call, and I made a mental note of that).
I do not recall communicating with Bob meaningfully again for some time. He may have sent an email or two my way as well with articles, but if he did I do not recall it making any impact on me (I get 200-300 non-spam emails every day). I vaguely remember that he may have called around Christmas, but I am not sure of that, either. I do vaguely recall becoming a little bit more familiar with the whole naked shorting issue, but whether it was from articles he or others sent, or just from coming across it on the Internet, I cannot say. And to me, like most, it struck me as a half-baked conspiracy theory.
The second substantive communication I remember with Bob was a couple days before our earnings call at the end of January. He called to say that there was extremely strange trading go on in our stock. I did not take this seriously, as everyone claims to be able to look at stock charts and detect sinister forces. I pulled up the Reg SHO Threshold List he had talked about when he had called in November, and which started being published in early January of 2005. I noticed that we were not on it, and drew this fact to his attention. I recall Bob sounding rather baffled, and saying, “That surprises me.” He asked me if I had checked to see if we had appeared on foreign exchanges, and I told him I had not. He may have mentioned that we were on one of the German ones, but I am not sure about that. He did tell me he was going to research on it.
As we went to hang up, Bob asked if I was going to invite Rocker onto the call again. I told him that it was my plan to do so on every call. Bob asked, if Rocker came on, would I let him, Bob, on as well. I thought about it and said, “Sure”: after all, I don't know any rulebook that says a company's earnings calls are places that shorts get to call in and ask questions of the company. Maybe an earnings call is a place where shorts call in and get asked questions by other people. Where's the rulebook that says otherwise? In particular, I recalled Rocker being extremely confrontational and aggressive in the way he asked questions, and I thought it would be worthwhile to have on the line someone who seemed to have his number.
Those who have listened over the quarters have remared that I seems distracted at times. This is true. One of the reasons is, in fact, that I DO get distracted: for many quarters people kept coming into my office and slipping me notes, trying to give me feedback, etc. It seemed that no matter how clearly I asked not to be interrupted, some people assumed that that instruction did not apply to them.
So in this January's conference call we tried something different. I got Rich Paongo (who controls the screen that communicates with the operator) to move into my office with his computer. We got it set the night before, and tested it. All was fine. Then the next morning, as the conference call began (literally as we began speaking), Rich's computer crashed. I went though my spiel (including asking Mr. Rocker on the call) as I watched Rich frantically try to get his machine rebooted. Eventually he gave up, and for the rest of the conference call Rich rushed back and forth from my office to Dave Chidester's with scraps of paper listing those on the line waiting to ask a question. On one of the first of those slips of paper was the name, “Bob O'Brien,” which surprised me, as Rocker had not made any appearance: I chose to call on everyone else first, figuring that I would only call on O'Brien if Rocker called in, or if there was time at the end.
Some time into the call, we reached the point where I had taken everyone's call whose name had appeared on one of those slips other than O'Brien's. The latest slip that Rich had brought me did not even have O'Brien's name on it, and I did not even know if he was still on, or if he was on, did he want to come on the phone, given that Rocker had not called in. So I said to Rich, “There was a guy, 'Bob O'Brien….'” Which, of course, the operator heard (I wear a headset in these calls), and he was soon placed on the line.
It is true that Bob opened up saying, “The name might not be familiar….” I assumed he meant, “to your audience” (though later I could see why people took him to mean, “to you” though he never said that and it did not occur to me at the time). He went into his long explanation, and after a while I began cajoling him into asking a question. But a funny thing was happening: it was the first time that Bob made sense to me. He no longer was spouting an unintelligible set of disconnected claims, and the pattern of logic became clear. Yes, he did tell me then that we were on six foreign exchanges, and I recall that as was the first time I had heard that, or at least, that the significance of that fact dawned on me (I recall having heard we had shown up on one or two before that).
Then a number of funny things started happening:
• A couple hours after the call, O'Brien called my office with the news that we had, in fact, shown up that day on the Reg SHO Threshold List. He kicked himself, he told me, for not checking the night before, as he could have used the fact on our conference call. I checked myself online, and saw that he was right: we had appeared on the Reg SHO list (I think it was January 27's, and the call took place on the 28). Naturally, that struck me as odd.
• On January 27th, at the close of business, we announced our numbers. We had beaten all revenue and earnings estimates by a country mile. But the stock had dropped precipitously. Well, that is explainable: who knows what Wall Street was really expecting, and what do I care about the stock price anyway? But the funny thing is, the stock started cratering 30 minutes before we announced our numbers, and continued far into the aftermarket. And 4 million shares traded that day, about twice our previous maximum and about 100% of our non-institutional float. That struck me as a bit odd.
• On January 28th, 9 million shares traded. That is, about 100% to 200% of the float, depending upon what you count, and 225% o the previous day's trading, which was itself nearly 100% greater than any previous day's. Again, that stuck me as odd.
• A number of articles that came out ignoring all the ways we crushed what analysts had expected, focusing instead on a relatively obscure comment I had made deep in my letter to shareholders. After explaining how we had added almost 600 basis points in margin over the year, I wrote: “Here is the punch-line: I now see another 250 basis points we can squeeze out of logistics, but these are, I fear, the last. Furthermore, shareholders are not going to see them: as in the coming quarters we scrape these savings out of the system, we will in one way or another pass them on to the consumer. Thus you are unlikely to see our margins rise above 15%, excluding the effects of auction and travel.” I amplified in my earnings call on this, emphasizing that it was not the case that there was no more margin to be gotten, and that this was good news. Now, normally one would think that a company announcing results that blew everyone's expectations out of the water, and which had that it thought it could save another 2.5% and thus lower prices that much costlessly, would most people excited. Instead, a torrent of negative articles gushed out downplaying our results and harping on this line as though it indicated a crisis. For example, TheStreet.com published an article. Did they mention how we had beat revenue estimates by about 10%, and earnings estimates by 100%? No. In an article titled, “Overstock Takes the Under,” the opening line was, “Overstock.com, the online closeout retailer, found profitability in its fourth-quarter, but said that gross margins were unlikely to rise above 15% and that any future savings would not be passed on to investors.” Call me madcap, but that struck me as a strange way to describe a blow-out quarter. And of course, I could not help but recall that David Rocker is the plurality owner of TheStreet.com, that it regularly trashes companies he is short, and that it has graduated such journalistic luminaries as Herb Greenberg, who wrote (as I recall) about 35 negative articles on one Rocker short last year, along with many on Overstock. OK, that all looks a bit odd to me: call me madcap.
• O'Brien was able to point me to another company which had experienced an incredibly similar pattern. In the days leading up to its earnings announcement volume built dramatically. They announced earnings that beat everyone's expectations, but the price dropped precipitously. The same “news” sources (i.e., TheStreet.com, Herb Greenberg, Barron's etc.) regularly bashed the company. And it was, coincidentally I am sure, another known Rocker short. Again, all this struck me as odd.
• On January 29th, we confirmed that O'Brien was right, and that we were trading on six foreign exchanges (in places like Stuttgart, Bavaria, Australia). That struck me as odd, too.
A good value investing Fool might ask, “Why do you care, Patrick? Why care about your stock price?” And all I can say is, I really don't care about my stock price. I know some shareholders care, but I don't. But months previously some stranger on the phone had told me of a complicated and improbably sounding scheme to manipulate our company's stock price. He had made four wild predictions (list of journalists who would call and do hatchet jobs, foreign exchanges, Reg SHO list, baseless government investigation), one of which came true in days, and the second and third of which came true by January 28th and 29th. I saw weirdly negative news articles that all picked out the same obscure comment and made a federal case out of it, while overlooking results that surpassed everyone's expectations. Bizarre patterns emerging in our stock trading. And all these events being mirrored in other companies that apparently faced the same shorts, the same pseudo-journalists (TheStreet, Herb). And so on and so forth. Call me madcap, but someday, if a history gets written of this, people are going to say, “Holy cow, Byrne was such a dope, can you believe how long it took him to see and react to what was going on?”
At some point, isn't it legitimate even for a value investor to say, “Someone is trying to destroy this company, and I think I do have some duty to my shareholders not to stick my head in the sand as it happens”?
I recall spending that weekend online, reading everything I could on this issue. I talked a lot in the following week to O'Brien. And when he sketched out the idea for NCANS.net, I said I would support it. We started drafting an advertisement to appear in The Washington Post. And we laid out a rough plan for how we might work together to foil the forces of evil.
That, my friends and foes alike, is the story of how O'Brien and Byrne teamed up. There will be much more to tell someday, perhaps. For months folks have gone on the Yahoo message board posting things like, “You see, Byrne said, 'There was a guy, Bob O'Brien'! That must mean……” For the life of me I do not get the significance is of these deep textual deconstructions. Yes, I knew he was on the phone, was a bit surprised at that (as Rocker had not come on), and let him come on the line when no one else had their hand raised. Yes I had conversed with him before: most people who come on those calls are people I have conversed with before, and I don't go out of my way to advertise that. Yes, he did tell me things on that call that I had not known previously. So what?
But mostly, that was the first time the story got laid out in a way that all the pieces that had been troubling me for nine months began to fit together.
Very respectfully,
Patrick
PS I have seen so much nonsense on the Yahoo board that I never bothered responding to any of it. Why bother, when the miscreants' hired bashers would just drown it out? I wish I had thought of the Fool in this regard earlier. Please feel free to post any or all of this letter to other boards, when you see the miscreants and blackguards doing their work.
PPS I am aware that Bob's pen is poisonous, and have done what I can to sweeten it. But the guy doesn't work for me or take orders from me. Really. He can do what he wants. But I apologize for any unduly caustic remarks on the aprt of my friend. |
