Former Overstock.com, Inc. chief executive Patrick Byrne said he’s hanging out in Bali, Indonesia, living near a secluded beach with little connection to the outside world, much less the company that he founded and led amid various controversies for the past 20 years.
But in recent days, in a series of phone calls and emails with FOX Business, Byrne says he’s now ready to explain the entire reason for his controversial Aug. 22 departure from Overstock and, specifically, his abrupt sale of all his shares in the company – just before the firm announced that it had lowered earnings guidance for its flagship retail division.
The stock sale added another layer of discord to one of the most bizarre boardroom dramas in recent years with corporate governance experts now saying that the Securities and Exchange Commission should investigate Byrne for insider trading. It also comes amid an evolving account by the former CEO of his alleged work as an FBI informant helping with the investigation of Russian meddling in the 2016 election – claims that he initially made in a flurry of blog posts and in television interviews before leaving the country in August.
According to Byrne, his departure and stock sale are unrelated to his FBI activities or what he has described as a romantic tryst with an alleged Russian spy, Maria Butina, though he says those matters will become a huge story sometime soon. Byrne in his interview with FOX Business said he didn’t want to dwell on spycraft (“I’m supposed to be keeping quiet [on] all that political stuff,” he said), adding cryptically that the full story “will break this year and it will be 100 times bigger than Watergate … it’s political fraud conducted by the deep state against the republic, against Democrats and Republicans ... I was asked to set up Hillary Clinton,” all of which he declined to elaborate on.
He was more forthcoming about the sale of his entire stake in the company as he was heading out the door as Overstock CEO and more importantly before the company gave guidance that sent shares lower. He says the stock dump had nothing to do with any prior knowledge that the company would revise downward its earnings projections for the company’s retail unit as has been suggested. He says he had no knowledge of the guidance at the time of the sale and vehemently denies engaging in insider trading.
So why did he sell all his stock when he did? According to Byrne, it all came down to an increasingly frayed relationship with senior board members and company executives who wanted him out of the company and lied to get him to resign. The board had been led to believe, by people Byrne did not name, that if he left the company, shares would trade as high as $50, and that was their incentive to push him out by any means necessary.
These people, he says, misled him about the reasons why the company was having difficulty getting its all-important corporate insurance policy renewed, telling him it couldn’t be renewed with him as CEO and remaining a lightening-rod for controversy. Byrne said he agreed to resign for the good of the company but initially would sell just a fraction of his 10 percent stake in Overstock.
Days later, Byrne says that evidence was presented to him that there were more prosaic reasons for the insurance issue, namely the company’s effort to convert itself to an outfit that specializes in blockchain technology, which meant he was lied to by senior people inside the company.
“The insurance excuse was a set up by the chairwoman [Allison Abraham] and CFO [Greg Iverson] and that pissed me off,” Byrne said in a telephone interview. “When I found that out, I said I was going to dump all my stock, sell my house in Utah and never step foot in the state again. Twenty years of this stuff was enough.”
An Overstock spokesman didn’t respond to emails or telephone calls for comment or to make Abraham available for an interview. Iverson, who resigned from the company in late September, did not respond to request for comment.
Byrne says he hasn’t been contacted by the SEC but doesn’t know if the company has. An Overstock spokesman didn’t return an email seeking comment on the matter. An SEC spokesman did not return a call for comment.
The timing of Byrne’s stock sale has certainly raised eyebrows from corporate governance experts, who have raised the specter of insider trading given the multiple layers of controversy to beset Overstock in its aftermath, from lower earnings guidance, to management changes as well as Byrne’s own, sometimes riveting but often bizarre, tale of being part of an FBI espionage investigation.
“It’s entirely possible Byrne thinks the company would go down without him,” said Columbia Law School professor John Coffee. “But if he did have material, non-public information he was not free to trade. I can’t disbelieve Patrick Byrne but it’s possible he had a double incentive to sell when he was fired and because he knew the stock was going to hell.”
Byrne, for his part, said the issues over his resignation and stock sale culminated a years-long battle with board members and some company executives that left him emotionally drained. Byrne founded Overstock in 1999 and brought the company public in 2002, building the retailer into one of the biggest companies that sold furniture and home goods over the Internet.
During his years as CEO, Byrne also openly courted controversy — he led a campaign against Wall Street short sellers who believed that Overstock shares were overpriced. He publicly attacked reporters on his own website who he said helped promote the short thesis. He sued short sellers themselves for “naked shorting” shares, a then a legally obtuse technique that allows short sellers to multiply their position at little or no cost.
Byrne’s legal forays were met with mixed results, though the Securities and Exchange Commission eventually passed a rule outlawing naked short selling when big banks cried foul during the 2008 financial crisis. Over the years, shares of Overstock have remained volatile and more recently began to struggle against increased competition in the retail space. Byrne added a new level of uncertainty by seeking to radically change Overstock’s business model, converting it into a series of blockchain-dominated businesses while attempting to sell the flagship retail unit.
The sale floundered against the backdrop of an SEC investigation into disclosures senior company executives made about the blockchain business (Overstock’s new CEO Jonathan Johnson has downplayed the probe in a previous interview with FOX Business; the SEC declined to comment). Another possible impediment: Byrne’s flamboyant account of being an FBI mole. Byrne claims that on the orders of the agency, continued a romantic relationship with Butina, who is currently serving an 18-month prison sentence for allegedly spying on behalf of the Kremlin.
Amid all this, Byrne’s hold on the company weakened, he said. In his retelling, he fought off various coup attempts over the past 20 years but was unable to fight off the latest one when he was told that if he didn’t resign, the company couldn’t get what’s known as directors and officers insurance–or at the very least the price would be so astronomical the company couldn’t afford it.
Also known as D&O insurance, these policies are prerequisites for any public company which faces numerous lawsuits aimed at directors and top executives even under normal circumstances. After he decided to resign, Byrne said he was then ready to dump no more than 4 percent of his holdings. Days later he says he was given evidence that the insurance matter was a ruse to get him out of the company, and that’s when he says he dumped his entire 10 percent stake, netting him nearly $100 million.
In an email to FOX Business, Byrne explained the timing of the stock sale this way:
“So on the spot, on August 21, I decided to go through with the resignation, but sell not 2-4%, but 100%. I told 8-10 executives, such as the ones listed on the cc of that email….I asked them to review our guidance. Dave Nielsen (Retail President) came back said, The Retail executives met, reviewed it all, and we do not have to change guidance for this year. We think we can hit the $15-$17 million EBITDA for Retail which we have guided the Street. I submitted my resignation letter that day to Jonathan and GC Glen Nickle. It included affirming that guidance. They edited the letter and returned it without raising any objection to that guidance.”
Weeks later, Overstock announced that it was revising its guidance downward in its retail division for a number of reasons, including increased insurance costs, softness in the business and impact of tariffs stemming from the China trade dispute. In the same announcement, the company said Johnson would be Byrne’s permanent replacement as CEO, and it named a new CFO – Robert Hughes – to replace Iverson.
In the same announcement, the company said Johnson would be Byrne’s permanent replacement as CEO, and it named a new CFO–Robert Hughes–to replace Iverson.
The management discord coupled with the new earnings guidance sent shares of Overstock tumbling after some initial buying when Byrne stepped down. Shares of Overstock have tumbled nearly 50 percent since Byrne stepped down and sold his shares. Since revelations of his stock sale and the new earnings guidance Overstock has been hit with shareholder lawsuits accusing the company of fraud.
“The insurance thing was a lie, cooked up by Allison and Greg (but I am confident others who were in on it),” Byrne said in another email about why he sold his shares when he did. “I thought of changing my mind and not resigning, but I had had enough: 20 years of those kinds of games from the bureaucrats in cahoots with certain board members who dream of being executives but are never on the front lines themselves or had a single idea of their own. 50% of our mental energy has been devoted to these internal games over the years.”
Byrne says his biggest mistake in running the company was separating the CEO and chairman roles.
“It invites political b-------,” he adds.
As for the company, he wishes it all the best, he says, though he remains angry that the company didn’t defend the timing of his stock sale.
“This is not my company,” he says, remarking that it’s 3 a.m. in Bali and he’s overlooking a secluded beach. “For 20 years I was taking it from all sides. So I left and they clearly wanted me gone.”
Byrne added that he is “not returning to the United States until or unless I see them start rolling up the deep state. And making those arrests. I don’t care if it takes years. I am not coming back to America until I start seeing the right people arrested.”
He declined to say who those people are. The FBI declined to comment.