Patrick M. Byrne

From Wikipedia, the free encyclopedia

This page is currently protected from editing until disputes have been resolved.
This protection is not an endorsement of the current version. See the protection policy and protection log for more details. Please discuss any changes on the talk page; you may use the {{editprotected}} template to ask an administrator to make the edit if it is supported by consensus. You may also request that this page be unprotected.

Patrick M. Byrne (born 1962, Ft. Wayne, Indiana, United States) is the president, CEO and chairman of the board of directors of Internet retailer Overstock.com. Byrne took control of Overstock in 1999, shortly before it took on its current name. He had previously served shorter terms leading two smaller companies, including one owned by Warren Buffet’s Berkshire Hathaway.^[1]

In 2002 Byrne brought Overstock.com public. The company has since increased its revenue to around $800 million a year, although it has yet to turn an annual profit. Byrne was named to Business Week’s list of the 25 most influential people in e-Business in 2002^[2] and Ernst & Young awarded Byrne the "2002 Milestone Award Winner Utah Region."^[3]^[4]

Byrne has recently become known for his campaign against naked short selling, a practice which he says has been used in violation of securities law to hurt the price of his and other companies' stock.^[5] Under his direction, Overstock.com has filed two lawsuits alleging improper acts by Wall Street firms, a hedge fund, and an independent research firm.^[6]

1 Background
2 Overstock.com
- 2.1 Worldstock
- 2.2 "Dutch Auction" IPO
3 Campaign against naked shorting
4 Awards and Media attention
5 Education lobbying
6 References
7 See also
8 External links

Background

Patrick Byrne is the son of John J. Byrne, former chairman of Berkshire Hathaway's GEICO insurance subsidiary and White Mountains Insurance Group.^[7] He holds a certificate from Beijing Normal University and has a Bachelor of Arts degree in Chinese studies from Dartmouth College, a Master's degree from Cambridge University as a Marshall Scholar, and a Ph.D. in philosophy from Stanford University.^[8]

Byrne was a teaching fellow at Stanford University from 1989 to 91 and was manager of Blackhawk Investment Co. and Elissar, Inc. He served as Chairman, President and CEO of Centricut, LLC, a manufacturer of industrial torches, then held the same three positions at Fechheimer Brothers, Inc., a Berkshire Hathaway company manufacturing police, firefighter, and military uniforms.^[7]^[9]

Byrne has a black belt in tae kwon do, and once pursued a career in professional boxing. He is a cancer survivor, and has ridden a bicycle across the country to raise awareness and money for cancer research at the Dana Farber Cancer Institute. Byrne has also focused on promoting education, particularly in support of implementing school vouchers and other educational reforms.^[10] Byrne was the largest donor to political causes in Utah in the period 2003-2006, while his father came third.^[11]

Overstock.com

Main article: Overstock.com

In 1999 Byrne was approached by the founder of D2-Discounts Direct, asking for capital. The company had generated slightly more than $500,000 in revenue the previous year by liquidating excess inventory online. Byrne found the idea of online closeouts intriguing, and invested $7 million for a 60 percent stake in the company in the spring of 1999. In September the same year he took over as CEO, and the following month the company was renamed Overstock.com.^[12]^[13]

Worldstock

During a vacation in Southeast Asia Byrne found that many village artisans were held back by the lack of retail channels, as their production was fragmented and the quantities produced were small. He further realised that the Overstock model was perfectly suited for their needs. In 2001 he therefore set up the Worldstock division of Overstock.^[14]^[15] Worldstock searches through villages all over the world for people capable of producing quality products, by 2006 there were approximately 6,000 producers contributing. On average, about 70 percent of the retail price on all Worldstock items sold goes directly to the artist.^[16]^[17]^[18]

"Dutch Auction" IPO

Byrne initiated a Dutch auction IPO of Overstock.com in 2002. The company was one of the first to go public under a system advanced by WR Hambrecht + Co to retain a greater share of capital within the company rather than going to the investment bank underwriters used in conventional public offerings. Byrne has said that competing banks reacted against this, attempting to obstruct the success of the offering through negative reports and by shorting the company's stock.^[19] When Google later in 2004 went public via a Dutch auction IPO, Byrne commented that Wall Street firms similarly pushed negative stories, but did not keep it from going forward successfully.^[20] Four years after the OpenIPO, one official of Hambrecht, its now former co-CEO Clay Corbus was added to Overstock's board of directors.^[21]

Campaign against naked shorting

In 2005, Byrne contended that numerous hedge funds, analysts and journalists were colluding in an attempt to profit through illegal naked short selling aimed at various companies. Byrne has argued that the practice, which involves selling shares of a stock short without arranging to borrow the shares, has been used in concerted efforts to drive down the share price of certain companies much further than is possible with ordinary short selling, despite SEC regulations that generally prohibit the practice. Byrne said this has caused the failure of a number of small or financially troubled companies, which then becomes highly profitable for the naked short sellers.^[22] In a letter to the Wall Street Journal in April 2006, Byrne contended that "blackguards have practiced 'failure to deliver'" of securities, were "destroying businesses and (probably) destabilizing our capital markets."^[23]^[24] Since 2005, Overstock has filed two lawsuits relating to the matters under Byrne's direction.^[25]

In the first lawsuit, filed 2005, Overstock.com sued hedge fund Rocker Partners and the equities research firm, Gradient Analytics (formerly Camelback Research Alliance), saying they illegally colluded in short-selling the company while paying for negative reports to drive down share prices.^[26] The defendant (i.e. Gradient Analytics et al.) moved to have the case dismissed, however the California court ruled in August 2006 that the suit should be allowed to proceed.^[27] Gradient filed a counter-complaint against Byrne for libel.^[28]

Overstock.com filed a second lawsuit in 2007 against a number of large investment banks relating directly to alleged illegal naked short selling.^[29] Both cases remain in litigation.^[30]

Byrne's campaign against naked short selling has attracted controversy, including criticism from a number of journalists. In a column in the New York Times in February 2006, journalist Joseph Nocera described Byrne's actions as a "campaign of menace" and as an attempt to silence Overstock.com's critics.^[31]^[32] MarketWatch's Herb Greenberg has called Byrne the runner-up for Worst CEO of the Year two years running.^[33] One of Byrne's claims, that naked shorting can cause heavy dilution of a company's stock by creating sales untied to any specific shares, has been criticized by Wall Street Journal columnist Holman W. Jenkins. Byrne has cited Overstock.com as an example of a company whose shares have been more than 100% sold short in one quarter, but Jenkins suggests that this merely reflects Overstock.com's heavy trading volume and relatively small public float. Jenkins further argues that brokers are inherently cautious in using the practice, due to the high risk of trading shares that are not guaranteed to exist.^[34] Byrne has denied that his campaign is primarily about Overstock.com, but others contend that it is an attempt to divert attention from Overstock.com's financial performance, noting that the company has not turned a profit in several years.^[35] However, Byrne has received some favorable coverage, and was featured in a Bloomberg Television show on Naked Short Selling, "Phantom Shares"^[36], in March 2007.

In March 2006, John Byrne, chairman of Overstock.com and father of Patrick Byrne, said that he was thinking of stepping down in disagreement over the campaign. Referring to it as a "jihad," the elder Byrne said he believed it was taking time away from managing the company. Byrne said, “I'd rather keep my relationship with my son than be the chairman of the board.”^[37] In April 2006, John Byrne stepped down to become vice-chairman, and in July of that year he resigned from Overstock's board of directors.

Byrne was instrumental in Utah's passage of a law aimed at curbing naked short selling. The legislation was repealed in February 2007, after state representatives were advised that it probably would not withstand judicial scrutiny due to federal preemption.^[38] Byrne criticized the repeal,^[39] but Senate Majority Leader Curtis Bramble said that legal advisers believed that the state would lose any litigation over the law.^[39]

The campaign has also involved the Securities and Exchange Commission to varying extents. An SEC investigation of Gradient was initiated but then dropped in February 2007.^[40]^[41] On May 17, 2006, an SEC investigation of Byrne and Overstock.com was initiated and remains ongoing,^[42] seeking information as to the company's accounting policies, targets, projections, and estimates relating to its financial performance.^[43] In July 2007, two American Stock Exchange options market makers were fined and suspended for using Regulation SHO exemptions to "impermissibly engage in naked short selling" in trades involving options and stocks for their own account. Overstock shares were believed to be among the stocks traded. The market makers settled without admitting or denying the allegations. None of the defendants sued by Overstock were named in the decision, but the Dow Jones News Service said that the decision was likely to be used by Byrne in pursuing his case.^[44]^[45]^[46]

Awards and Media attention

Since Byrne launched Overstock.com in 1999, he and his company have garnered attention from numerous national media outlets. Among them are the Wall Street Journal, ABC News with Peter Jennings, Fortune, CBS Marketwatch, and Business Week, among others. He has also appeared on Bloomberg TV, CNBC, and Fox News shows such as Your World with Neil Cavuto. In 2002, Byrne was named to Business Week’s list of the 25 most influential people in e-Business in 2002: the magazine cited survival strength and vision as qualities that qualified Byrne for the list.^[47] and Ernst & Young awarded Byrne the "2002 Milestone Award Winner Utah Region."^[48]^[49] Also in 2003 Overstock came no.1 in MountainWest Capital Network (MWCN) Utah100 award for the fastest growing company in Utah. Fastest Growing category are based on percentage revenue increases in the five preceding years.^[50] Byrne also won the first-ever Utah Best of State Awards for Community Development in 2003.^[51]

Education lobbying

Byrne is head of First Class Education, an education lobbying organization. Byrne was appalled by bloated administrative and bureaucratic expenses in the educational system, so the organization's primary goal is known as "65 cent solution," which would require 65% of all education spending to be spent on teachers' salaries and other classroom costs.^[52]

The plan has been criticized by the National Education Association and other groups.^[53]The NEA cites a study by Standard and Poor's, which indicated "no significant positive correlation between the percentage of funds that districts spend on instruction and the percentage of students who score proficient or higher on state reading and math tests."^[54] According to First Class Education, as of July 2006, 2 states had implemented the 65% plan, Missouri and Oklahoma, while Colorado rejected 2006 ballot issues 39 and J, both implementations of the 65 cent solution.^[55]

Byrne also serves on the board of directors of The Friedman Foundation for Educational Choice. The non-profit organization was founded by Milton and Rose Friedman and promotes school vouchers and other forms of school choice.^[56]

Byrne and his family contributed most of the funds in support of House Bill 148 in Utah, a bill that would allow the state to provide funding vouchers for students who decide to leave public schools for private schools.^[57] In January 2008, it was reported that Byrne and his parents contributed about $4 million to the pro-voucher campaign, or three-quarters of its $5.4 million funding. Opponents of vouchers spent $4 million. ^[58] When that bill was soundly defeated in a statewide referendum (62% opposing vs. 38% favoring)^[59], the Salt Lake Tribune reported that Byrne "called the referendum a 'statewide IQ test' that Utahns failed." He said, "They don't care enough about their kids. They care an awful lot about this system, this bureaucracy, but they don't care enough about their kids to think outside the box."^[60]

Byrne criticized Utah governor Jon Huntsman for not sufficiently supporting the voucher campaign. According to Byrne, Huntsman had before he was elected stated that he was "going to be the voucher governor," and Byrne had donated $75,000 to Huntsman's campaign for governor in 2004. However, to Byrne´s disappointment, the moment Huntsman was elected he went missing from the debate, and Byrne told the Associated Press that he would now bankroll anyone who could defeat Huntsman at the polls, "even a communist".^[61]

During the school voucher debate, Byrne said of high school dropouts, "Right now, 40 percent of Utah minorities are not graduating from high school. You may as well burn those kids. That's the end of their life. That's the end of their ability to achieve in this society if they do not get a high school education. You might as, just throw the kids away." He was criticized for the comment by the Utah NAACP, but rejected their demand for an apology.^[62]