OSTK ceo

Buffet on OSTK and short selling:

http://online.wsj.com/article/SB114684573302044986.html?mod=home_whats_news_us

"Selling Berkshire Short

Warren Buffett said he has no problems with short sellers and naked short sellers, who bet against stock that they haven't borrowed. "I don't have a great problem with that," said Mr. Buffett about naked short selling. "If anybody wants to do that with Berkshire, more power to them."

Mr. Buffett acknowledged that he has a "friend" who is very concerned with naked short selling, a reference to Patrick Byrne, the chairman and chief executive of Overstock.com, an online "close-out" retailer. He said that while the many companies that attract a lot of interest from short sellers "very often" are later revealed to be frauds, he noted that "The one my friend runs is not at all." Mr. Buffett and Mr. Byrne go back a long way; Mr. Byrne's father, Jack Byrne, was long-time head of Geico, Berkshire's automobile-insurance subsidiary.

"From our standpoint, we have no objection to people selling Berkshire short," Mr. Buffett added. "There's nothing I would love better than to be paid to lend out my shares to people who would short Berkshire shares," he said, referring to the high interest rates stock-lending brokers charge short sellers to borrow hard-to-borrow stock.

As for allegations that short sellers often try to "do things," sometimes inappropriately, to push down the prices of stocks so that they can profit, Mr. Buffett said some long-only investors also try to push up share prices inappropriately. "I have no ax to grind against short sellers," he said.

Mr. Munger, his business partner, noted that short selling is a difficult way to make a living. "It would be the most irritating thing in the world" to short a stock that soon tripled, with "the happy crooks flashing your money around while you're trying to meet margin calls," he said."
 
I wonder. After a seemingly endless streak of horrible news, could Warren Buffet's reassurance that this company is not a complete fraud rally the stock?
 
Quote from BlueHorseshoe:

Buffet on OSTK and short selling:

http://online.wsj.com/article/SB114684573302044986.html?mod=home_whats_news_us

"Selling Berkshire Short

Warren Buffett said he has no problems with short sellers and naked short sellers, who bet against stock that they haven't borrowed. "I don't have a great problem with that," said Mr. Buffett about naked short selling. "If anybody wants to do that with Berkshire, more power to them."...................


........."From our standpoint, we have no objection to people selling Berkshire short," Mr. Buffett added. "There's nothing I would love better than to be paid to lend out my shares to people who would short Berkshire shares," he said, referring to the high interest rates stock-lending brokers charge short sellers to borrow hard-to-borrow stock.
More...

LOL LOL LOL.... you people crack me up. i doubt buffet would have felt this way if there were endless counterfeit shares being created to short his company when his business was five years old. this analogy is comical. his statement about being paid by people who borrow his stock is asinine. THERE IS NO STOCK BEING BORROWED Mr Buffet...... the brokers are collecting interesting off of ghost shares!!!!!!!!!!!!! this is what the etg lawsuit is about.
 
Quote from ratboy88:

LOL LOL LOL.... you people crack me up. i doubt buffet would have felt this way if there were endless counterfeit shares being created to short his company when his business was five years old. this analogy is comical. his statement about being paid by people who borrow his stock is asinine. THERE IS NO STOCK BEING BORROWED Mr Buffet...... the brokers are collecting interesting off of ghost shares!!!!!!!!!!!!! this is what the etg lawsuit is about.
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ratboy is dead right. The Vodiagroup piece points out that no stock is borrowed, ergo nobody is paid outside the Prime Broker. Vodiagroup estimated 205 bill robbed from Pensions alone. Guess who bails them out? Youse......

Go back to http://www.elitetrader.com/vb/attachment.php?s=&postid=817794 and read five and six. PB was dead right on Weiss. Do you think the other stuff is on target? I agree with BlueHorseShoe that Rocker didn't quit to be with his grandkids. I have seen the results of the some of the digging that has been done by some very sophisticated Investigators, and I assume it is the thumbnail of a very large hand. What you see next will shock even veterans of the industry.

I understand the MW stuff is huge. They billed 40 billion annually, and people close to this say that this indictment will be very, very significant.

Elgindy's sentencing is delayed again. He was due 5/2. That could mean he is rolling again. He faces life. In my experience, that delays the Feds. They take in everything they can. They want Mr. Big.

This needs to end.
 
My guess is, Alsin lowballed numbers not to look wacky.

I have heard, less than 7mm at DTCC. 30mm total short, PB believes, and he's heard 60.






Investing
Simple math explains the exorbitant yields being paid to borrow Overstock shares.
Brokers have been haphazard lenders of shares and now have to scrape to find them.
Similar to runs on banks, brokers may have created a run on themselves.

Investing
Brokers Face Their Worst Nightmare
By Arne Alsin
RealMoney.com Contributor

5/9/2006 9:04 AM EDT
URL: http://www.thestreet.com/p/rmoney/investing/10284396.html

There are about nine million shares of Overstock.com (OSTK:Nasdaq) that are currently short.

Here is the problem: My calculations and research indicate that there are only 4.5 million lendable shares in the float, so twice as many shares have been sold short by brokers as should have been permitted. This is not possible, if brokers are playing according to the rules.

It's important for investors to understand that all shares in the float are not lendable. If shares are in cash accounts or retirement accounts, they are not supposed to be lent. Even shares in margin accounts are not lendable if account holders ask their broker to move those specific shares from T2 (margin) into T1 (cash).

Of course, certificated shares are not lendable when they are in the possession of the shareholder. Certificated shares represent an unusually large number in the case of Overstock. (By way of full disclosure, our mutual fund is in the process of obtaining certificates for our Overstock shares.)

Figuring out the lendable float in any stock requires some time and effort. In the days when stock certificates were actively traded, anywhere from 10% to 20% of a company's float was lendable. When the 10%-20% of the float threshold was reached, the supply of lendable certificates dried up.

While the 10%-20% level shouldn't be viewed as a hard-and-fast rule in today's market, it's a reasonable approximation for companies that have been around awhile. That's because there's a greater likelihood that shares are tucked away in pension and cash accounts (and are not lendable), or held at institutions that don't lend out stock.

Consider the shares of Fairfax Financial (FFH:NYSE) . The company has a short position of 16% of the float. But if you talk to lenders in the open market, they'll tell you that this stock is impossible to borrow. Most of the shares are held by long-term investors that won't lend the stock to short sellers. And many other shares are held in cash and retirement accounts and are not lendable.

Depending on the company and the shareholder base, it's also possible to have more than 20% of the float short and still not be near 100% of the lendable float. For example, the spinoff of Blockbuster (BBI:NYSE) from Viacom (VIA.B:NYSE) has resulted in a large lendable Blockbuster float. That's because many shares are held in retail margin accounts. While Blockbuster is heavily shorted at 31% of the float, it's still possible for shorts to borrow shares at a reasonable cost.
Is Overstock An Attractive Value?
The excessive short position in Overstock has uncovered short sellers scrambling to find Overstock shares to borrow in the open market. Yields of 25% are being offered in the open market and, even at that rate, shares are scarce. An agent lender for one of the world's largest asset custodians (with several trillion dollars of assets) told me that it doesn't have a single lendable Overstock share.

The irony here is that Overstock is now attractive to both value investors and to institutions that facilitate short-selling.

Value investors can figure out easily enough that this stock is too cheap. Big money is made by buying into companies that are enveloped by negativity and on the cusp of profitability. I'll go into detail in my next column on how to value Overstock and why robust profitability is coming for this particular model.

The stock is attractive for institutions that lend to short-sellers because they can loan the shares and generate a 25% yield. Since there is essentially no supply of stock to borrow, it makes sense for a lending institution to buy non-lendable stock -- such as stock in certificate form or in an IRA account -- and convert those shares into lendable stock, capturing a 25% yield in the process.

Even if a bear is convinced Overstock is headed down, it's irrational to short a stock at a 25% annual cost in an effort to capture a maximum 100% gain. It's completely implausible that the shorts stand to make a 100% gain (before costs). Talk to any reputable venture capitalist and they will tell you that Overstock's category dominance (far and away No. 1 in inventory liquidation) has enormous value.

Overstock offers such a lousy risk/reward proposition for shorts, there can be but one reason that a 25% yield is obtainable for lendable shares. It's because certain market players are grossly overextended. With twice as many shares short as are lendable, there are a lot of naked short positions in place that are desperate to find shares to borrow.
The Threat to Investor Confidence
When brokers allow twice as many Overstock shares to be sold short as are lendable, it is evidence of a structural problem. Undergirding the market is an implicit triangle of trust between brokers, companies and investors. For the market to function properly, investors must have confidence in the system. They must be confident that their property is protected, that rules are uniformly enforced and that rule violators are punished.

Stocks are accounted for as a so-called "fungible mass" in a book-entry system, in the same way as currency. It requires confidence for the system to work. Depositors don't demand actual currency for their cash assets because they have confidence in the book-entry system of banks.

As one money manager explained to me, after struggling for weeks to get delivery of Overstock shares (see my column about my similar experience), he lost faith in the system. He didn't trust that his brokers would not lend out his shares. So he demanded actual certificates, which took another several weeks, and they are now in a bank vault.

When shareholders resort to demanding actual certificates for their shares, as has occurred en masse at Overstock, it is akin to a depositor going to his bank and demanding actual currency -- a so-called "run on the bank."

In the days before federal insurance, a run on the bank used to be a banker's worst nightmare. It's fair to call the growing demand for certificates in Overstock a "run on the brokers." And it may turn out to be a broker's worst nightmare.


--------------------------------------------------------------------------------
At time of publication, Alsin and/or ACM was long OSTK and BBI, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor, and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.
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Flytiger,

I sent you a private message a few months ago stating that I knew an institution who likes OSTK's fundamentals and they were being paid about 20% per year to lend out their shares. I have since heard that many investors are buying the shares and simply lending them out. Also, my own broker recently sent me a price for my request to short the shares (the price was insane). So to say that this practice is not taking place - is as I can assure you not accurate! Perhaps some don't know any better and are not being paid - but there are many who are.......

The institution's argument was that they liked the fundamentals of the company and they could basically reduce their cost to zero in 4/5 years (at a 20 % per year rate). And in his view the game was basically rigged "against" the shorts as they have to pony up such fees to get short. (including me). As Buffett says - bring on the shorts!


As for these "ghost shares" as you call them. The bottom line is that these types of shares are created every day in derivative markets. That is, if I buy some deep puts from you - we have in fact created "ghost shares" - and these positions will always exist no matter what. In fact, there are some rumblings that the SSF complex is looking at adding many of these "hard to borrow" names so the average investor can buy the shares at a discounted price from the guys who want to go short but can't (They would be cash settled - not stock settled)

Are you guys saying that we should ban derivatives? Take a look at the open interest for the OSTK options - you could actually make a point that if you added up all the open interest you could potentially double the number of shares outstanding in "ghost shares".

Would you guys be happy if all the "naked shorts" simply had all their short positions transferred out of the stock and into a derivative product like SSF's? (ie - all the shorts and their respective longs simply hold positions in SSF instead of the equity) - Let's say there are 3 million shares that are in the FTD category - we take these 3 million shares and we take them out of the equity market - ie one big cross with the shorts on the buy side and their respective longs selling (the guys who can't get their shares). We now - put up another cross where the shorts sell OSTK SSF's to the longs. No more naked shorts.......just more open interest in the derivative markets.
 
I am not a back office expert. I know that they were using illegal bullets, and that's being investigated. I sent your comment on to Bryne, and I suggest you send it to Alsin, also.

Illinois is a big part of the NAASA continigent for a very big reason, CBOE. Your points are cogent and well taken.
 
I believe Byrne predicted this last summer. The regulatory agencies depend on "tips" from reporters, etc. This is what you get when they latch on.

DJ Overstock.com Gets SEC Subpoena Over Acctg Procedures>OSTK



DOW JONES NEWSWIRES



Overstock.com Inc. (OSTK) said late Tuesday it has received a subpoena from

the Securities and Exchange Commission requesting documents related to its

accounting policies, targets, and projections, among other things.



The subpoena also requests information relating to Overstock.com's complaint

against Gradient Analytics Inc. The Salt Lake City-based Internet retailer

said it plans to respond to the subpoena in due course.



-Gabriel Madway; 415-439-6456; AskNewswires@dowjones.com





(END) Dow Jones Newswires
 
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