Dear Valued Customer,
Enclosed, please find the Wired Magazine article, “Meet Patrick Byrne: Bitcoin Messiah, CEO of Overstock, Scourge of Wall Street”. It concerns the decade-long battle Overstock has waged to expose Wall Street mischief.
The backstory is as follows: Overstock went public in 2002. Between 2002 and 2005 I found myself mingling with various Wall Street bankers, hedge funds, and journalists, and began to form an impression (and hear) of unsavory activity. I made it my hobby to study it, and in 2005 I went public about what I had learned. For several years thereafter, the New York financial press derided and distorted my claims, often to the point of appearing to engage in a cover-up. When in 2008 what I had been saying became indisputable, Wall Street went silent about this episode. The enclosed Wired article recounts that history, and explains how it is related to Overstock’s recent decision to accept Bitcoin.
I understand that you may not be interested in tales of corruption in Wall Street and Washington, DC, and if so, please simply enjoy the coupon above. However, if you read this piece from Wired, which effectively ends a cover-up regarding the Battle of Overstock versus Wall Street, I think you will understand why I chose to share this article with 41.7 million of my closest friends.
Patrick Byrne says the zombie apocalypse is coming, and there's one thing that can save us: bitcoin.
He tells me this during a phone call from his car, a black Tesla Model S that's winding its way through
the mountains above Salt Lake City, on its way to Byrne's home in the Utah ski country. Byrne is the CEO and chairman of Salt Lake's Overstock.com, one of the world's largest online retailers with more than $1.3 billion a year in sales, and he's about to place an enormous bet on bitcoin, the digital currency that exists only on the internet.
In the estimation of many leading economists, bitcoin is a fatally flawed idea shaped by people who
don't really understand how money works. But Byrne is an unorthodox thinker, a three-time cancer
survivor with a PhD in philosophy who's never been afraid to fight for what the rest of the world sees
as complete madness. Though he runs a company that's publicly traded on Wall Street, he spent
much of the last decade accusing Wall Street's biggest brokers of widespread corruption – not to
mention Wall Street hedge funds, analysts, reporters, and government regulators – arguing in the
most grandiloquent terms that their greed would eventually bring the country crashing down. It's no
surprise that his maverick career would collide with the equally iconoclastic bitcoin. It's as if his
whole life has been leading to this.
As he drives to his mountain cabin, Byrne reveals that his company is a week away from accepting
payments in bitcoin, and he sees this as a small but important step toward a financial revolution the
world so desperately needs. He has long warned that our economy is hurtling toward another
massive recession – what he calls the zombie apocalypse – and he believes bitcoin can shelter
us from the fallout.
If the digital currency reaches its true potential, he tells me, it might even avert this apocalypse
all-together. "Someday, either zombies walk the Earth or something close to that," says Byrne, the
son of the man who built the GEICO insurance empire, Jack Byrne, and a protege of Warren Buffet,
the most successful investor in the history of Wall Street. "Bitcoin is the solution."
In recent months, countless others have floated bitcoin as a panacea for the world's financial ills.
But like Marc Andreessen, one of the founding fathers of the web browser, who has also put his
weight behind the digital currency, Byrne brings more than highfalutin metaphors to the table. The
51-year-old has proven that, beneath his wonderfully entertaining and often perplexing way of
describing the world, he has a knack for seeing where things are going before others do.
The problem with the modern economy, Byrne says, is that it rests on the whims of our government
and our big banks, that each has the power to create money that's backed by nothing but themselves.
Thanks to what's called fractional reserve banking, a bank can take in $10 in deposits, but then loan
out $100. The government can make more dollars at any time, instantly reducing the currency's value.
Eventually, he says, laying down a classic libertarian metaphor, this "magic money tree" will come
But bitcoin is different. It's like online gold: The supply of the digital currency is controlled by
software running across a worldwide network of computers, and its value is decided not by the feds
or the big banks, but by the people. "It can make our country more robust," says Byrne, a disciple of
the Austrian school of economics, which holds that our economy should rest on the judgments of
individuals, not a central authority. "We want a money that some government mandarin can't just
whisk into existence with a pen stroke."
Zombies. Magic money trees. Mandarins. As Byrne admits, it's a ten-dollar answer to my ten-cent
question about his plans for the future of Overstock.com, and although I know the man well, I can't
help but wonder how much of this is just him calling attention to himself. But a week after this phone
call, Byrne will make good on his promise, as Overstock becomes the first major online retailer to
accept payments in bitcoin, letting you buy everything from patio furniture to smartphone cases with
the fledgling digital currency. And the following month, during Overstock's quarterly earnings call, he
will reveal that he has personally converted millions of dollars into bitcoin. The Overstock CEO is
placing more than one big bet on an unpredictable future, but Byrne has proven himself prescient
before – about the internet and the media as well as the economy.
It's only natural that Overstock would be the first big-name company to embrace bitcoin, and you can
bet that Byrne is serious about pushing the digital currency into the everyday world. On one level,
Overstock is your basic bargain retailer, a company that will sell you just about anything on the cheap.
But under the leadership of Byrne – who's not only a doctor of philosophy but a onetime amateur
boxer – this is also a company that's seven years into a lawsuit that accuses venerable investment
banks Goldman Sachs and Merrill Lynch of a "massive, illegal stock market manipulation scheme."
At times, his battles with Wall Street have left him a lonely figure, belittled by the establishment. For
years, large portions of the financial press questioned his sanity as he so vehemently – and so
colorfully – claimed that some of the biggest names on Wall Street were complicit in a scheme to
drive Overstock and other companies out of business using a loophole in the stock market. But after
the financial crash of 2008, the Securities and Exchange Commission moved to close that very hole.
And in the years since, Overstock has established itself as a profitable business, even as Byrne
continues his crusade against Wall Street.
"He's not just an opinionated jerk, though it sometimes sounds that way," says Bill Hambrecht, the
investment banker who helped Byrne take Overstock public in 2002 using what's called a Dutch
auction, a method that loosens the influence of the big Wall Street banks, preventing them from
taking their typically enormous cut of an IPO. "He puts us on a little bit, just to bring attention to the
issues. But he has brought attention to them, and though he has made some wrong calculations,
he's hung in there, and he has built a really good business – something I don't think he's gotten
proper credit for."
Adopting bitcoin is the next step along this same road. As Overstock embraces the digital currency,
Byrne predicts it will spur other big names to follow its lead, including rival Amazon, and push the
world toward a future where bitcoin is a true alternative to the dollar. But, looking further down the
road, as he is wont to do, he also believes that the very public, math-driven system that underpins
bitcoin can remake Wall Street, eliminating the market loopholes he has railed against for so many
The Sith Lord
Patrick Byrne calls it his finest moment. In August 2005, during an hour-long conference call,
he told an army of investors and reporters that Wall Street was plagued by a campaign to exploit a
flaw in the stock settlement system and make millions at the expense of innocent companies,
including Overstock, whose share price was in free-fall. The scheme, he said, was driven by a
"Miscreants Ball" of players, including hedge funds, financial analysts, government regulators, private
detectives, trial lawyers, perhaps the mafia, and even the press itself.
At one point, he went so far as to say that this sweeping campaign was orchestrated by a single
mastermind, someone he called the "Sith Lord." It became known as the "Sith Lord call."
Over the previous six months, Byrne had waged an underground battle against those he believed
were trying to bury his company and others like it. But the call brought his efforts into the mainstream,
and it would define Byrne in the popular press and across the internet for years to come.
Though Byrne sees the call as his finest moment – a moment when he exposed the dark underbelly
of the financial world – much of the press painted it as poppycock. The next day, he appeared in the
The New York Post with a UFO flying over his head. And as he pushed back in pointed, clever, and
sometimes angry ways – insisting that the press was complicit in the schemes he was fighting, that
reporters were too close to the hedge funds and banks they were covering – the heat on him only
At one point, he accused Fortune reporter Bethany McClean of "giving Goldman traders ****jobs."
And this did not lead to more favorable coverage from Fortune or the rest of the financial media.
"Maybe the Sith Lord is actually Patrick Byrne himself – because he has become his own worst
enemy," McClean later wrote in Fortune. "Nietzsche said it best: 'Whoever fights monsters should
see to it that in the process he does not become a monster.'" In The New York Times, veteran
financial columnist Joe Nocera branded the conference call "loony beyond belief" and described
Byrne as a menace who harassed reporters just to silence criticism of his company.
In the realm of public perception, it was quite a tumble for Byrne. After he launched Overstock in
1999 – using the internet to reinvent the flea market business, selling discount and clearance and,
yes, overstock goods on the cheap – he was a golden boy of the dot-com revolution, an executive
with a pedigree the financial media couldn't resist. As a teenager, he would skip school to spend
afternoons with Warren Buffet, his "Dutch uncle," whose Berkshire Hathaway eventually purchased
his father's company. He studied Mandarin at Dartmouth and philosophy at Stanford, and after he
finished his PhD, Buffet tapped him to run one of Berkshire's many companies, a midwestern outfit
that made uniforms for policeman, firefighters, and the military. "I was the only goy in the schmata
trade," Byrne remembers. And as the first wave of dot-coms went belly up, his new company used
this to its advantage, turning many of those bankrupt dot-coms into suppliers by snapping up their
He was also tall and blonde and classically handsome. And he was a three-time cancer survivor.
In his twenties, Byrne was diagnosed with testicular cancer, and it metastasized throughout this
body. "His mother called me and said: 'If you want to say goodbye to Pat, this is the weekend. The
doctor doesn't expect him to live much longer,'" remembers Brown University professor Onesimo
Almeida, a close friend who first met Byrne in early-'80s China, sitting in the lobby of the Bejing Hotel.
"When we went to see him, he was skin and bones and his voice had changed to this high-pitched
squeal. He said: 'I think that I'm turning this around. I'm starting to feel better.'" After Byrne fought
back from this low point, the cancer returned twice more, and twice more, he fought back. It was a
narrative the press lapped up time and again.
But after the Sith Lord call, all the praise turned to scorn. In addition to such enormous criticism from
Fortune and The Times, he received a constant stream of online vitriol from an army of other news
outlets and pundits, including, most notably, a former BusinessWeek reporter named Gary Weiss,
who ran a blog that seemed to exist only as a means of belittling the Overstock CEO.
Short Selling Gets Naked
Some call it a crusade. Others call it a jihad. But Byrne calls it his mitzvah – a holy mission pursued
for the good of mankind. He launched this campaign against many Wall Street practices, but mainly,
he took aim at something called "naked short selling."
With a short sale, traders borrow shares and then sell them, anticipating a drop in the price. If it does
drop, they can buy back the shares and turn a profit. A naked short sale works much the same way –
except that traders don't actually borrow the shares. They sell shares they don't have, and if this
happens in sufficient numbers, it can flood the market with nonexistent shares – "phantom stock" –
and actually drive prices down.
Basically, Byrne was complaining about a flaw in the stock settlement system, the system that
controls the delivery of stock from one party to another. Three days after a trade, a seller must
deliver the shares to the buyer. But with a naked short sale, this doesn't happen. Shares are sold but
not delivered. Some failures-to-deliver are a natural part of a rapid-fire trading system, but massive
failures in a specific stock could indicate an abusive campaign to manipulate prices. "The stock
settlement system was a mess," Byrne says, quoting legendary investor Charlie Munger. "It was like
having slop in a nuclear reactor."
Byrne's stance was that hedge funds and banks were exploiting this hole, that regulators and
legislators were turning a blind eye to it, and that reporters were ignoring the practice, too, if not
actively supporting it.
Certainly, most of the press discussed naked shorting as some sort of myth created by Byrne and
others. But even as his father, the onetime chairman of the Overstock board, came out against his
son's campaign, Byrne kept going, as only he could.
When BusinessWeek reporter Tim Mullaney sent him a list of questions – questions Byrne
characterizes as the "are-you-still-beating-your-wife?" variety – the Overstock CEO promptly
published both questions and answers on the web, effectively killing the magazine's story. He planted
someone inside a meeting of the Society of American Business Editors and Writers, recording what
was said about him – that he needed to be stopped – and posting that online, too. He created a
new company, staffed by his own journalists and web mavens, that would do nothing but fight his
crusade, battling the traditional press through a website he called Deep Capture – a nod to Byrne's
claim that regulators had been "captured" by Wall Street, that there was a revolving door between
the big banks and the top positions at the SEC.
"Mark Twain said: 'Never get in a public fight with someone who buys his ink by the barrel,'" Byrne
tells me. "I say: 'Someone who buys ink by the barrel shouldn't get in a public fight with a man who
buys bandwidth by the gigabyte.'"
In 2006, when his efforts to expose Wall Street abuses were rebuffed by Senator Richard Shelby,
then chairman of US Senate's banking committee, Byrne went on national radio and called the
Senator an "ignorant cracker." He and his Deep Capture team spent years trying to prove that his
biggest critic, former BusinessWeek reporter Gary Weiss, maintained control over the Wikipedia
pages that painted such a negative portrait of Byrne and his crusade – and eventually, they
succeeded, digging up emails implicating Weiss and forcing his removal from the site. Overstock
itself went so far as to file a $3.48 billion lawsuit against Goldman Sachs, Merrill Lynch, and seven
other prime Wall Street brokers, claiming they too were complicit in these naked shorting schemes.
And, then, in the fall of 2008, the market crashed. The fallout would cast Byrne's crusade in whole
The Radioactive CEO
Years later, when I spend a few days with Byrne at Overstock headquarters and sit down for dinner
at his home, a jewel of a log cabin just outside the ski resort of Park City, Utah, he's still railing against
the ethics of market traders and the ineffectiveness of government regulators and even the influence
of the East European mafia on Wall Street. Having steeped himself in philosophy at Stanford,
focusing on economics and jurisprudence, he describes the world almost like a shaman – someone
who sees things you at first don't – and there's a palpable restlessness about him. He sometimes
has trouble sitting down for more than a few minutes.
He doesn't talk like your average CEO, offhandedly sprinkling his conversation with allusions to
everything from Star Wars and the Dilbert cartoons to the Austrian-British philosopher Karl Popper,
and he doesn't dress like one. One morning, he shows up in a coat with leather fringe that looks like
something straight out an old Hollywood Western. Another day, he arrives in a collarless button-down
and a blazer with no lapels, looking more like Dr. No or some other villain from the James Bond
movies. Overstock executive vice chairman Jonathan Johnson says that when he first interviewed for
a job at the company, Byrne was wearing a silk Chinese shirt with a dragon print and an African
millipede was crawling up his arm.
But it's Byrne's Wall Street stories that raise your eyebrows the most, the tales that play out more like
pulp fiction than the life of a bargain retailer. His naked shorting crusade began with a phone call from
an anonymous investor who still refuses to give Byrne – or me – his real name. In the wake of the
Sith Lord call, Byrne says, Overstock was investigated five times by the SEC. And in early 2006,
according to Byrne and two others who were there, a man carrying messages for a Russian crime
syndicate threatened his life during a meeting on Long Island, insisting he abandon his Wall Street
It's no surprise that the biggest publications all but stopped writing about him for a time. His story is
so difficult for anyone to get their arms around. His way with metaphor can leave the literal minded
scratching their heads. And perhaps more to the point, Byrne spent so many years attacking the
press as few other public figures have.
His critics will tell you he wanted it this way, that his crusade was merely an effort to deflect attention
from his struggling company. "The clever part about Patrick Byrne is that his attacks on the press
really caused people to stop writing about him," says Times columnist Nocera. "It just wasn't worth
it. You can write about sane people."
But today, despite making such enemies on Wall Street, Overstock is a company that has been
profitable for three out of the last four years – that one down year the result of its misguided
attempts to rebrand itself as O.co. The company's move to bitcoin has begun to push Byrne back
into the public eye, this time in more positive ways. And though few press outlets have said as much,
his Wall Street crusade looks prescient in the wake of the 2008 crash.
After Bear Sterns and Lehman Brothers went under and Merrill Lynch was gobbled up by Bank of
America, the SEC issued orders designed to curb the very thing that Byrne had crusaded against. As
those financial houses struggled to stay afloat, it seemed, they too had been hit by naked short
According to James Angel, a professor of finance at Georgetown University and a visiting professor
at the Wharton School of Business who specializes in the nuts and bolts of the economic system,
Byrne's warnings about naked short selling were nothing less than the naked truth. "Patrick Byrne
was pilloried in the press, who made him look like a conspiracy-mongering lunatic," Angel says.
"But sometimes, even conspiracy-mongering lunatics are right."
Many agree with Angel, but others – including USC economics professor Lawrence Harris and
journalists like Nocera – still say naked shorting was never the problem that Byrne said it was.
All these years later, this is still a hot-button issue, in part because Overstock is still fighting its
massive lawsuit against Goldman Sachs and Merrill Lynch, but also because Byrne is so reviled by
so many. "I find it unbelievable that you think this is a complicated story with two sides," Nocera tells
But, whatever side you come down on, the larger point is that Byrne is still fighting. Following the
SEC's new rules, naked short selling almost vanished. But the agency has since indicated that at
least part of the problem still remains, and Byrne and others believe the practice has moved into
other parts of the market, including what are called exchange traded funds. Once again, Byrne says,
people are selling stuff they don't really have.
The $100,000 Ad
His fight is no less pointed – and no less entertaining. This past summer, he spent $100,000 on a
full-page ad in The Wall Street Journal, merely so he could mock the embattled hedge fund billionaire
The previous Thursday, a federal grand jury had indicated Cohen's company, SAC Capital, charging
the $14 billion hedge fund with four counts of securities fraud and one count of wire fraud for running
what prosecutors call an unprecedented insider trading scheme. "Congratulations on the indictment,
Stevie. And remember: roll early, roll often," Byrne's ad read, calling on Cohen to give up his
co-conspirators. The ad even went so far as to claim that Cohen was the Sith Lord that Byrne warned
of all those years ago.
It was typical Byrne. When I press him, he can't quite support this claim, and certainly, the SAC
indictment had nothing to do with naked shorting. But Byrne has spent years complaining about the
practices of Cohen and SAC. In his own way, he's trying to show that hedge funds and banks are
exploiting many holes in the system. And behind the scenes, he continues to work in subtler ways to
plug these holes.
Over the years, the Overstock CEO has cultivated a vast network of like-minded souls who believe in
greater reform on Wall Street. He has a way of attracting Wall Street whistleblowers and then helping
to push their stories into the public eye, via the courts and through reporters sympathetic to his
cause. One of these whistleblowers is Mark Rosenblum, a former employee at Thomson Reuters who
sued the news and business information firm, claiming he was fired for telling the FBI the firm was
selling key economic data to certain traders before it was released to the rest of the market.
"I would not have had the courage or the necessary resources to come forward without Patrick,"
Rosenblum says, explaining that Byrne has not only helped put him in touch with the right people
but helped with his legal bills.
Byrne's crusade is almost pathological, and some argue this is a product of his well-documented
health problems. Over the years, he has gone under the knife 29 times, including eight surgeries for
an irregular heartbeat, a residual effect of his cancer. His last surgery was in late January. "He's
trained in philosophy – which means he takes a larger view already – and he's also struggled with
his health," says Robert Shapiro, a Harvard-trained macroeconomist who served as president Bill
Clinton's undersecretary of commerce and is now a consultant to companies that believe they've
been victimized by abusive naked short selling, including Overstock. "People who come through
those challenges, particularly when they're young, have a very different view of the world. They are
less concerned with the bullshit – and more concerned with larger things."
Some believe his cancer has nothing to do with his attitudes – and that includes Byrne himself.
But his concern and determination are very real. It's evident yet again with Overstock's move to
bitcoin. To many, the bitcoin revolution is insanity, but after deciding the digital currency was the way
forward, Byrne struck a deal with a bitcoin payment processor and pushed the digital currency onto
his site in a matter of days. "I didn't want someone else to beat us," he says. Days after that, he
moved millions from his personal fortune into the digital currency.
Once again, Byrne is looking beyond the moment. He argues that bitcoin is an idea that can change
more than money. He believes it can change Wall Street too, putting an end to the corruption he has
spent so many years fighting. And others agree.
Bitcoin is a currency, like the dollar or the euro, and it's a money transmitter, like a credit card network
or PayPal. But at the most basic level, the worldwide software system that underpins bitcoin is really
just a means of instantly verifying that you've sent something to someone else. "It allows for the
decentralized proof and transfer of ownership," says Fred Ehrsam, the co-founder of Coinbase, the
outfit that handles bitcoin transactions on behalf of Overstock.
Because its ledger of funds is completely public, users always know how much money there is and
where it is. That's one of the reasons Byrne is so attracted to it. He knows that, as with gold, the
supply is limited. Governments and banks can't make more of it. But as Ehrsam points out, the
bitcoin framework could also be used for things other than money – like stocks.
"It so happens that the first application of this is payments and money, but it doesn't have to be,"
Ehrsam says. "It could transfer a securities, too." In other words, it would be feasible to build a
bitcoin for the stock market, a system that would quickly, easily, and reliably move securities, a
system that would make it clear who owns what at any given time, a system, in other words, that
could completely eliminate naked short selling and other schemes like it.
When I toss that idea at Byrne, he tells me that he's already thought of it, that it could prevent an
entire ecosystem of funds and banks from gaming the market. "It's like you're reading my mind," he
says. "You would have an instant, frictionless market, while having the added benefit of wiping out a
whole parasitic class of society – that is, the whole financial industry."
It's an outrageous and ridiculously ambitious idea. But it also makes perfect sense, and it just might
happen. The bitcoin software is open source, meaning anyone can make a copy and modify it as they
see fit. That includes Patrick Byrne.
Yes, some of the world's brightest financial minds question whether bitcoin even has a future as a
digital currency. That includes no less a name than New York Times columnist and Nobel Prize
winning economist Paul Krugman, who says it's not a reliable store of money, much less a viable way
of moving it from place to place. But that doesn't phase Byrne. He's been there so many times
before, and he typically responds in the same way. "Paul Krugman was great," Byrne says, "until he
Cade Metz is the editor of Wired Enterprise. Got a NEWS TIP related to this story -- or to anything
else in the world of big tech? Please e-mail him: cade_metz at wired.com.
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