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Overstock's Byrne Begs Forgiveness

The stock continues its slide.

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fell 6% after it joined the list of disappointing quarterly reports from Internet retailers.

The Salt Lake City company lost $14.2 million, or 75 cents a share, wider than the $3 million, or 16-cent loss, a year earlier and worse than the 51-cent loss forecast by analysts surveyed by Thomson Financial. Sales rose 64% to $169.4 million, better than the $160.3 million consensus estimate. Overstock President Patrick Byrne took responsibility for the shortfall in a typically effusive letter to shareholders.

"Q3 was rough," Byrne says in a letter that begins with the salutation "gomen nasai," or

I'm sorry. "I bit off more technology projects than my colleagues could chew. The last bite, an ERP implementation, was one bite too many, and we choked on it," he said.

Investors didn't seem to appreciate Byrne's candor. Shares dropped 6% in early trading and have fallen 55% this year. With the setback, Overstock joins its much bigger and better-established rivals


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in posting disappointing numbers.

"Some will criticize me for taking my eye off the ball to pursue a jihad," Byrne acknowledges, referring to this summer's lawsuit against hedge fund Rocker Partners. Overstock accuses Rocker and others of conspiring to drive down Overstock's share price. Rocker Partners owns 8% of


, the publisher of this Web site.

In August, Overstock filed a lawsuit in California accusing Rocker Partners of spearheading a campaign to drive down the company's share price by helping to promulgate tainted stock research and manipulating various press organs (including, at times, this one) and other entities. The suit named David Rocker, his fund and various employees, as well as Gradient Analytics, a research outfit Overstock implied was in league with the short-sellers.

The suit alleges unfair business practices and negligence and alleges that Gradient's research reports were "simply platforms for the Rocker defendants to pursue its investment agenda of having Overstock's share price being kept as low as possible."

In a subsequent conference call and two


interviews, Byrne claimed a short-selling conspiracy had been carried out against his company at the behest of "one of the master criminals of the 1980s" who was "supposed to end up with our company." He declined to name the figure but likened him to the "Sith Lord" of Star Wars renown.

Rocker Partners said in August it planned to countersue Overstock, alleging that media appearances by Byrne amounted to a "smear campaign" that potentially injured Rocker's business reputation.

Bloomberg News

reported Thursday that the

Securities and Exchange Commission

had spoken to three former Gradian employees about the company's Overstock research. Rocker and Gradian have denied wrongdoing.

Earlier this week, Byrne was replaced as chairman by his father, Jack Byrne, who had been vice chairman. Retired Ernst & Young Chief Executive Ray Graves and former President and Chief Financial Officer Jason Lindsay also joined the board of directors.

Early Friday, Overstock dropped $2.02 to $30.90.