Overstock.com (NASDAQ:OSTK) has been in the share-price doldrums lately. One reason has been the continuing legal travails surrounding its CEO, Patrick Byrne, who is embroiled in a potentially devastating libel suit in Canada. There have been two recent developments in the suit, neither of which bodes well for Byrne or Overstock.
As I've pointed out in previous articles, most recently this one, Byrne is in hot water over wild allegations on his "Deep Capture" website concerning a Vancouver stock promoter named Altaf Nazerali.
Deep Capture has been offline since mid-October, when a Canadian judge granted an injunction shutting the site. Yet it did not come back online when injunction was lifted at a hearing on Dec. 13.
A graphic on the website says:
Deep Capture is currently undergoing scheduled maintenance.
Please try back again soon
Sorry for the inconvenience.
Well, it seems that that's a fib.
In a post to the Deep Capture Facebook page on Jan. 14, Byrne's hireling Evren Karpak admitted that "maintenance mode" isn't quite true. It's not a technical issue, he explained, but a legal one. In response to question, "Anybody have any idea when the website will be functioning?" Karpak responded as follows:
I would predict days, maybe a week. There aren't any technical issues; we just wanted to review some content with our lawyers before putting it all back up.
But Karpak's explanation doesn't seem to be truthful either. Any journalist or author can tell you that a pre-publication legal review doesn't take two months.
So what's the real reason? One possibility, which seems the most likely, is that Byrne's lawyers in Canada are unwilling to allow Deep Capture to go live while a judge is considering a motion by Byrne to have the case thrown out on jurisdictional grounds.
But even if the case is thrown out, I'm told that Nazerali's legal remedies are far from over. This nightmare is just beginning for Byrne, not ending.
That brings me to the second development. It concerns new revelations surrounding Mark Mitchell, the ex-journalist turned p.r. operative who wrote the fairy tales that have plunged him and his boss into potentially deadly waters.
Back in 2006, during his controversial tenure as editor of Columbia Journalism Review's Audit column, a recent Columbia grad named Bree Nordenson wrote a column accusing the "left-wing Paul Krugman" of "partisan slipperiness."
Economist-blogger Brad DeLong took issue with that, pointing out that the column goofed in a fundamental way. "Nordenson" wrote back with a snarky, arrogant, disingenuous response. Note that I put "Nordenson" in quotes. That's because it wasn't she who was writing but Mark Mitchell, pretending to be her. In fact, she wasn't responsible for the creepy and inaccurate column. Mitchell was.
Last week, DeLong reported that he had just received an email from Nordenson, in which she reported that Mitchell had posed as her in an email to DeLong:
[F]ive years or so ago I wrote an article about Paul Krugman and David Brooks for what was then CJRDaily. Anyway, it was not a pretty incident. I had just graduated and taken a position at CJR the magazine and I occasionally wrote for the Daily. I wrote a piece about how Krugman and Brooks used statistics and it was significantly re-written with inflammatory language ("partisan slipperiness" etc) and posted by then assistant editor of CJR Daily Mark Mitchell (he left/was let go a few months afterwards, along with the editor). Anyway, I just googled myself for the first time in ages (I am no longer in journalism, probably for many of the reasons you do not like the press) and saw that you posted a letter that is attributed to me but that was actually written and sent to you by Mark Mitchell. I would never have written anything like that- smug, self-righeous etc (very similar to how Mark changed the original piece). If possible, it would be great if your website could reflect that Mark Mitchell wrote that letter:
This would help explain why Byrne is so anxious to run for the border, and not keep his promise to "go a few rounds with Nazerali."
Yes sir, Mitchell is going to be a fun deposition -- for the plaintiffs. They ought to put towels under his chair: He's going to be sweating blood.
Mitchell's modus operandi is to take the work of others -- in this case reporting on Nazerali, some of it from a book on BCCI that was published in 1992 -- and update it by making stuff up. His posing as Nordenson in 2006 is devastating to his credibility.
Perhaps he thinks that it's OK to make stuff up about Nazerali because of negative publicity he's received in the past. There is a concept called "libel proof" that I'm sure that Mitchell had in mind when he decided to make stuff up about the guy.
Mitchell seems to have deployed the same strategy with other people about whom he has weaved outlandish conspiracies, ranging from Michael Milken to low-grade stock promoters with Russian names.
The problem comes when someone sues. Byrne, who bankrolled the venture and takes responsibility for it, would be mincemeat in an American court. In Canada he's in even worse trouble-- even if he didn't have a contempt of court motion pending against him.
Any other company would have tossed out Byrne long ago because of this kind of craziness. The media of any other state but Utah would have pilloried Byrne years ago. But the Utah media hasn't said a word about the libel suit and shareholders are stuck with this guy. The stock price shows it. Overstock shares are crawling along at its 52-week lows, despite energetic purchases by a Canadian fund manager.
If Overstock is ever dragged into the suit, which is a distinct possibility, the company's exposure would be enormous. But even if not, this case will be a distraction for the already out-to-lunch Byrne.
A study of Mitchell's techniques would make a fine case study of a fabulist, but definitely not in a journalism or even a marketing journal. What this creep does on Byrne's behalf isn't even good p.r. It's just simply inane.
UPDATE: After this article came out, Bree Nordenson wrote me to clarify that while Mitchell did indeed write the email to DeLong, he did not hijack her account. "He was responsible for writing the letter," but she sent it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.