Contempt Of Court Order Sought Against CEO Patrick Byrne, Google

Includes: GOOG, OSTK
by: Gary Weiss (NASDAQ:OSTK) CEO Patrick Byrne has long showed contempt for those who disagree with him, whether it's the people of Utah for rejecting his school voucher scheme, the SEC for investigating his accounting gimmickry, or the media for reporting his "Sith Lord" craziness. There have been few consequences, except to his reputation.

But in his passive-aggressive response to a libel suit that was filed against him and his stock market conspiracy website, "Deep Capture," Byrne's spit-in-the-face attitude may have gone too far. A court hearing will be held on Thursday to decide whether he will be held in contempt of court for an incredibly dumb message board post.

Lawyers for a Byrne smear victim are seeking the contempt order for a posting as "Hannibal," his acknowledged Internet moniker, that taunted the plaintiff, Vancouver stock promoter Altaf Nazerali. As I pointed out after I learned of the injunction, Byrne blatantly violated an injunction issued by the Supreme Court of British Columbia, prohibiting him from making comments concerning Nazerali anywhere on the Internet.

Since Byrne's post makes a sarcastic reference to the British Columbia Supreme Court issuing injunctions, he can't very well plead ignorance.

So what we have here is the CEO of a public company, one that does business in Canada, thumbing his nose at a Canadian court in the most contemptuous way possible. I wonder what the Overstock Board of Directors is going to do about this (as if I didn't know).

Nazerali's lawyers are also seeking contempt orders against Byrne's hireling, ex-journalist Mark Mitchell, for violating the gag order with an anonymous message board post seeking "dirt" on Nazerali, and against Google (NASDAQ:GOOG) for not heeding an order to exclude Deep Capture from search results. They also are seeking extension of an injunction that has shuttered the website.

I've uploaded the latest legal filing here. An affidavit by Nazerali, accompanied by dozens of pages of revealing documents - including a private investigator's report on Mitchell and Deep Capture - can be found here. The affidavit is a veritable treasure trove, replete with interesting background on Mitchell and detailed information on Byrne's last-minute switch of the Internet carrier for Deep Capture.

Byrne's post was a typically snearing missive, entitled "That's the Spirit, Ali Nazerali," in which he said, "It looks like Ali Nazerali wants to go a few rounds. Happy to oblige." Byrne went on to taunt "the esteemed jurists of the Supreme Court of British Columbia," suggesting that they impose a gag order on the White House, and implying that Nazerali was a kind of trans-national criminal.

This would not seem to be a propitious time for Byrne to engage in a cross-border game of chicken with the Canadian courts.

Overstock is facing default on its bank debt after a series of other disasters -- including a national push to tax Internet retailers, the failure of its ill-conceived "" rebranding venture, and the quiet folding of various business lines it had previously unveiled with much fanfare. Its shares traded on Friday at a 52-week low, dipping below $8 to its lowest closing price in three years.

There is even a web browser add-on called PriceBlink that automatically gets you the lowest price of any item at scads of online retailers, thereby making the company's entire business model obsolete. This is clearly a company in trouble.

It's not clear yet if Overstock will be dragged into this mess because of its links to Deep Capture. The company is already being investigated by the SEC for accounting chicanery, and is being sued by California law enforcement authorities for consumer fraud, lying to customers about its comparison prices. Its effort to squeeze cash out of Goldman Sachs (NYSE:GS) and other Wall Street banks is not going well, and the California prosecutors are fighting so hard that Overstock's lawyers are squealing like stuck pigs.

At the very least, Overstock's already grimy corporate standing and reputation will be further corroded by the spectacle of its loopy CEO being dragged into a tawdry legal battle in Canada in which he is indisputably in the wrong.

Byrne already is the company's most prominent liability. Byrne's mysoginistic, foul-mouthed diatribes - he accused famed journalist Bethany McLean of giving "blow jobs" - once obliged Overstock to list Byrne's mouth as a "risk factor" in its SEC filings. Byrne's family bankroll controls most of the stock, and as a result the board of directors is snoozing through all this.

Mitchell, a once promising journalist who hit the skids, is even more of a loose cannon than Byrne. Nazerali's lawyers contend that he was the author of a post on the Raging Bull message board seeking "dirt" on Nazerali. It's attached to this affidavit filed by Nazerali and replicated below:

click to enlarge

While I'm not acquainted with this particular message board cretin, Mitchell has a record of posting anonymously, as the New York Times has pointed out, and he posted recently to my blog (see the comments to this post). If he did author the "seeking dirt" comment, it would be an incredibly dumb thing to do. But even that stupidity is exceeded by another, even nuttier episode outlined in Nazerali's affidavit.

As recounted by Nazerali, and confirmed by emails included as exhibits to the affidavit, Mitchell engaged in a crude junior g-man gambit, offering to remove Nazerali entirely from Deep Capture in return for "cooperation."

Be sure to read the entire email exchange -- it's a honey. As played out in the murky interior of Mitchell's cranium, he apparently views himself as a kind of self-appointed public prosecutor, jousting with the evil-doers, armed only with a word processor, Byrne's money and a really vivid imagination.

According to Nazerali's affidavit, he had a conversation with Mitchell on Sept. 19 in which he

explained the numerous falsehoods in his article and the importance of correcting or removing them. In many cases, he had dealt with people I had never met or been involved in activities in places I have never been in my life.

The call was cut off in mid-sentence, and Mitchell responded with an email. Nazerali's affidavit continued:

I was shocked to read in the email that instead of saying that he would correct or remove falsehoods, Mr. Mitchell was trying to recruit me to become a "source" and holding out the possibility that he would remove my name from his articles in return.

Here is the Mitchell email quoted by Nazerali:

Nazerali's pleas for removal of the lies about him led to a post from Byrne on Deep Capture on Sept. 16, replicated here, that was tantamount to a blanket refusal to retract any of the crap on his website, no matter how loony. Byrne instead invited "the miscreants named in our stories" to contribute content to Deep Capture, and said, in a clear reference to Nazerali, "If Specially Designated Global Terrorists have spokesmen, we’ll publish them."

Byrne addressed his missive to "All Hoodlums, Cutpurses, Thugs and Assorted Miscreants Named Herein." It contained the following threat:

All goombas should understand that the day anything untoward occurs is the day that The Collected Works of Mark Mitchell 2008-2011 appears in the in-boxes of 41.7 million people.

Something untoward has definitely happened, as Deep Capture is now blanked, but Byrne has yet to carry out his threat to spam Deep Capture's garbage to's customers.

Nazerali may have been shocked by Mitchell's behavior, and I'll admit he's a doozy, but I'm not. As I've reported in the past, Mitchell engaged in pretexting in a conversation with me. Mitchell lied that he was a "journalist" when he was actually on Byrne's payroll.

Nor is it especially unusual for Byrne's people to pull this kind of juvenile stunt. His other minion, a nauseating former Utah Republican operative named Judd Bagley, tried to blackmail an anti-Byrne blogger by threatening to post harmful information about him. Obviously that tactic didn't work with Nazerali and the person in the link, but who knows how many people have been blackmailed into silence by Byrne's thugs?

In his alternately wheedling and menacing email to Nazerali. Mitchell said,

My intention was not to damage your reputation. Nor was it to cast judgment. Someone could quite easily write a worse story about me--my background is hardly one of perfection.

That's for sure. When he was editor of the online Audit column at Columbia Journalism Review, he was such a laughingstock that it attracted the attention of the Times, in the article I mentioned earlier.

Clearly, Mitchell's deposition is going to be a dilly. Legitimate journalists who have written accurate articles have been subjected to hellish treatment in American courts. And here we have a faux journalist facing justice for outright fictions in Canada, a veritable Devil's Island for libel defendants. See this analysis of how Mitchell cobbled together his smear job.

Byrne seems to have painted himself into a corner. He has promised to "go a few rounds with Nazerali." He has said he is happy to do so -- and that's just what he would do, happily, if he was telling the truth, if Nazerali was the multinational criminal that he is described as being in Deep Capture. After all, a libel suit would be a superb platform for Byrne to prove to the world that he is right after all, that his detractors are full of beans, and that there really is a multinational, Mafia-Al Qaeda naked shorting conspiracy.

Think of all the great information he'd get through discovery proceedings! And he wouldn't even have to blackmail anyone. He'd have court-authorized subpoena power. In other lawsuits, past and present, he has frequently crowed about how "discovery" would prove to the world the vast conspiracy that he, alone, has been fighting. It's never happened, as most of the people he's sued, bled white by legal fees, have paid him to go away.

So here we have a golden opportunity to prove the multinational Mafia-Al Qaeda naked shorting conspiracy. There's only one problem: there is no multinational Mafia-Al Qaeda naked shorting conspiracy, and Deep Capture is a collection of fairy tales.

That's why it's a safe bet that Byrne is going to turn the Canadian legal inside-out to get this case thrown out of court.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.