Naked Before Byrne

Naked shorts. There's something about those two words that begs for sensational coverage. But the scarcity of hard data on the illicit trading tactic so far has only polarized the debate on how serious a problem it has become.

Since TheStreet.com ran a story questioning whether a new law aimed at curbing naked short-selling was being enforced, the topic has become something of a media phenomenon. Not really because of TheStreet.com, but because of Overstock.com(OSTK Quote) CEO Patrick Byrne, who is like watching Lost -- always entertaining if sometimes a little hard to follow.

In what will surely go down as one of the least orthodox investor calls ever, Byrne set out to explain a lawsuit his company filed against Rocker Partners, a high-profile hedge fund.

Along the way, he described what he called a "Miscreants Ball," where hedge funds like Rocker waltzed with regulators, research firms and journalists at Barron's, The Wall Street Journal and, yes, TheStreet.com. Byrne also made shoutouts to fictional characters like Lord Sith as well as Wayne and Garth. If you're weary from chewing over dry SEC filings, this transcript is a real palate cleanser.

The issue got a further hearing Wednesday on CNBC when Byrne appeared opposite hedge fund manager Jeff Matthews, who was highly critical of Byrne but denied being part of any cabal against Overstock.

(Rocker Partners owns about an 8% stake in TheStreet.com(TSCM Quote), and the site's star columnist, Jim Cramer, as well as two former writers, were named by Byrne as guests at the Miscreants Ball. Rocker Partners said today that it plans to countersue Overstock, alleging that Byrne's recent media appearances hurt the firm's reputation.)

Byrne's call pushed the topic of naked short-selling into heavy rotation at CNBC and gave it a wider airing. In so doing, it revived the question of how serious of a threat naked short-selling really is. Some, especially those working at hedge funds, say it's a straw man -- that most of the positions created by failed deliveries are related to options trading and not a concerted effort to drive stocks down.

That may be the case. But without better data on stocks that failed to deliver, the rest of us will never know for sure.