I'm Matthew Boesler. Joining me on the line is Patrick Byrne, CEO of Overstock.com. How are you doing today, Patrick?

Patrick Byrne: Matthew, great to speak to you.

Likewise. Overstock.com released Q4 2010 earnings about a month ago, and I want to go back to the earnings conference call for a moment. You said on the call that Overstock.com is really not chasing the top line growth, and that you like the contribution line growth and you like managing your G&A and seeing this great growth in the bottom line. Then you say that if top line growth comes back, it will be from some other, say, smarter factors than brute force. I was wondering if you could shed some light on that.

Patrick Byrne: Sure. In 2010 we grew 24 percent on the top line. Our bottom line, 79 percent – from $8 million to $14 million GAAP. We like that. We like being GAAP positive. We could have, of course, put all of that profit back into more TV ads, more online advertising, and grow faster. But we think it is prudent at this point to instead make a lot of investments in technology. We built a new dev center; we're hiring lots of technologists and mathematicians. I think that's a better way for us to get real, stick-to-your-ribs value rather than just chasing the top line.

So, as we make these enhancements to our site, our supply chain, and the different kinds of things we offer – as we do this kind of stuff, I think that's the real way for us to generate, going forward, fundamental growth. We were $1.1 billion last year, and sure, we could just buy a lot more TV ads. But I'd rather see us growing from getting smarter, from making our website and our supply chain smarter, and finding ways to drive costs out of the system and such. So that's really more technologically driven than straight marketing driven.

Focusing a little bit more on the longer term, then, is what I hear you saying.

Patrick Byrne: Well, we always focus on the long term. I am a value investor by background, and one of the precepts of value investing is that you buy a share of stock if and only if you would buy it if the market were shutting down for five years tomorrow. The corollary is that you run a company as if there is no public market. You're always just trying to build; we're always thinking five years out. Well, three years out. It's kind of hard to think past three years out in this business. But, we're always thinking that way and never worrying about quarter to quarter.

Talk to us about Overstock's new branding initiative with O.co.

Patrick Byrne: Well, we sometime late last year changed our international presence. And we do have an international presence; it ships to 91 countries. We changed to O.co. We introduced it as a shortcut into the U.S. market. Our TV ads now – if you pay attention – they're all saying, "Use O.co as a shortcut to Overstock.com, and to help you remember, we'll give you free shipping if you use O.co." Quite a fair bit of our traffic has shifted to O.co and it's not out of the question that you could see our brand within the U.S. actually morph into O.co.

It's the saving engine. "O.co, the savings engine," is sort of a nice, tight, concise way of saying what we do, both to the public and inside the company. We're thinking of ourselves more and more that way, as a savings engine. We're not trying to have the full spectrum of products of an eBay or an Amazon, but what we have, we can deliver with great value. So we're really just about generating savings for the consumer, and that tells us what businesses we can get into and not get into. That's really the theme and the message of O.co. And again, you may see, depending on if the traffic keeps shifting over like it is, that become not just our international brand, but it may even expand into a more general brand for us in the U.S.

That traffic shift that you mentioned you are seeing -- is that domestic as well as international, or is that mostly international at this point?

Patrick Byrne: No, in domestic there has been a significant shift over as well.

Now, on Deep Capture, you've been following this Barry Minkow case pretty closely. He was charged in securities fraud against Lennar Corp; could you talk a little bit about your involvement with that?

Patrick Byrne: Well, I have a second hat I wear; I'm a journalist at DeepCapture.com. We've been studying this crew for years, and I can tell you exactly what's happened here. In October 2006, Barry Minkow approached Sam Antar.

Now, this is according to a deposition Minkow gave in a case with Usana. He approached Sam Antar and said, "Sam, why don't we work together." And you know both of these guys are ex-felons, they did jail time, and they both have presented themselves to the world as, you know, "I'm a reformed swindler," and, "it takes one to know one." That's the whole schtick.

So, in October 2006, Minkow approached Antar, according to the deposition. A few days later, a guy named Gary Weiss presented Sam Antar to the world -- sort of reintroduced him to the world -- and said, "Here's a guy everybody should know." In April 2007, something funny happened. Gary Weiss introduces a woman with another blog, a woman named Tracy Coenen. She immediately starts blogging on Overstock and Usana. Well, three days later, Barry Minkow's Fraud Discovery Institute submits this scurrilous smear job to the SEC saying Usana was a bunch of crooks. Well, that was all false and garbage, and it turns out, as a judge in Florida has just found, Barry Minkow doesn't really do any research. Just sort of the most cursory research, as the judge described it, before he's out there saying, "Oh, the company's a scam job," and such.

There's a well known New York hedge fund manager named Whitney Tilson who Minkow has said under oath paid him $40,000 to do this stuff on Usana. So now we get to Lennar Home Builders, and pretty much the same thing. Sam Antar wired Barry Minkow, the guy who's now just about to plead guilty and get another five years -- according to his lawyer he's about to take a plea and help the state and do five more years -- Antar wired him $250,000. Now, originally, Barry Minkow sort of covered in his testimony for Antar and said, "Well, he just did it as a gift; he liked me or something."

Lennar had a chance to depose Sam Antar, and we have sources that tell us that under oath, Sam Antar said, "I had to pay Barry Minkow that $250,000 as sort of a price of admission to this club," and he admitted that's how he could get in on this game. Later, Minkow paid Sam $30,000 back for Sam Antar to support Barry Minkow's attacks on Lennar, and that's according to a pleading that Lennar has filed. So this is how, there's basically a list of C-level bloggers – Gary Weiss, Sam Antar, Tracy Coenen – and they get fed material by this guy Barry Minkow.

There's a woman named Michelle McDonough, who is another convicted felon, and she controls another sort of C or D-list blogger named Floyd Schneider, and she took up the cudgel on Blue Nile at the request of a guy named Dan Loeb, who is another well-known hedge fund manager. Also, hired to do that was a guy named Eric Camil, who the Wall Street Journal has reported is kind of a dirty-tricks guy that hedge funds hire. Eric Camil also leaked -- he works at some part-time Florida Attorney General's office -- and he had access to -- I think it was the North Carolina Attorney General -- a case they were about to break, and he passed that information on to these hedge funds.

So, you will see, for example, going up on Deep Capture very shortly an analysis of, when Barry Minkow's stuff comes out, you can look at trading records of companies like Usana and when they started seeing failures to deliver in their stock, and when they went on the Reg SHO list, which was this list of companies that were seeing a lot of, let's say, manipulation in their stock, excessive failures to deliver. In Usana's case, three days before Minkow's delivering this Fraud Discovery Institute report to the SEC accusing Usana of a bunch of smears against them -- three days before he delivers, the deliveries go wild and Usana goes on the Reg SHO list for the first time.

That confirms that there are hedge fund patróns behind these guys. And that's a repeated pattern -- just before their stuff hits, there's always these great, big spikes in their failures. It makes clear that these guys are really -- the basic game plan is that they're paid to do hatchet jobs, to come up with smear reports. The hedge funds paying them do these, trade it, and know that they're coming. The hedge funds are paying these guys to come up with these smear reports, they're trading in front of them, and then the smear reports get fed to a group of compliant bloggers, these C-list bloggers, who just then go on message boards and write blogs, just thousands of blogs smearing the companies. But it's all fed -- the key thing to understand about guys like Barry Minkow or Sam Antar -- it's all fed out of the hedge funds.

So what about Whitney Tilson, then, with the $40,000 payment there?

Patrick Byrne: I think it's very interesting. I've asked Whitney Tilson for an explanation. Why would he be paying $40,000 to a swindler, felon, and now a second-time felon, like Barry Minkow? And he hasn't answered. Whitney's answer is going to be, "Well, I paid Barry Minkow to do research. Well, when Whitney Tilson, who is allegedly a legitimate New York hedge fund manager, goes out and raises money from his clients, does he say that he's making investment decisions based on the work of guys like Barry Minkow? I seriously doubt it.

And, in fact, what's clear when you get into it is that this isn't about research. Nobody is paying these guys this kind of money to hear what their thoughts are on the economy or what's their analysis of these companies. They're paying these guys to come up with sort of scurrilous smears against companies and then the hedge fund doing the paying can step in front of it and short it, buy a bunch of puts, and do a bunch of naked short selling, which is what explains the appearance on the Reg SHO just three days before their guy, like Barry Minkow or Sam Antar, takes their report to the SEC, and they simultaneously get this little coterie of C-list bloggers -- like Gary Weiss, Tracy Coenen, Sam Antar – to repeat all the smears on message boards and on their own blogs.

The fix is in, and that's the game. Not only is this all thoroughly documented I think on Deep Capture, depositions and so forth -- and there's a lot more about to come up, about to be published -- but remember, this is Barry Minkow, according to his lawyers, pleading guilty in having just taken part in all of this. This isn't some wild, speculative theory. He's taking another five years in prison and, according to his lawyer, cooperated with the authorities, which one can only hope means he's ratting out Sam Antar and Weiss and these other people, and explaining how this whole thing works. One can only surmise why a legitimate hedge fund manager like Whitney Tilson would pay him $40,000, but Whitney won't answer. I'd also like to know Dan Loeb's involvement. There's a cut out, a woman named Michelle McDonough, who takes care of this stuff for Loeb. But, you know, she's another convicted, did a year in prison, I believe.

So there's this whole network of sort of dirty operatives who work on behalf of hedge funds, and I think if Barry Minkow rolls, that will start exposing this whole crew.

It will be interesting to see how all of this shakes out and if it will end up eventually shedding some light on more of this activity that's been going on. It's been a while since we spoke with you last. I think there has been some pretty significant developments in your own case against the prime brokers since we last spoke. In December, you settled with several prime brokers, and you also expanded your case against the remaining two, which are Merrill Lynch and Goldman Sachs, to include RICO charges. I wonder if you could speak a little bit about that.

Patrick Byrne: Actually, this is all very much connected, because for these hedge funds to do these kinds of things, the reason they're doing it, the reason they take all of this effort to manipulate a stock down and do this kind of thing is because they are naked shorting it. And to naked short, you really need a nudge and a wink from your prime broker. So that's the prime broker's involvement. Then, the prime brokers can sort of lay off the dirt that would otherwise be what they are guilty of on market makers. So, there is not necessarily one pair of dirty hands. The dirt gets scattered all throughout the system. So, go back, we actually had two cases. We had another case against another hedge fund called Rocker Partners and a phony research shop in Phoenix called Gradient Analytics. It was exactly the same scheme as Minkow's. They printed all of this garbage against us and it was all false. They ended up retracting it.

Think of it this way. When Giuliani went after Michael Milken in 1990 or so, you have this whole ecosystem, and you have to prosecute by starting at the bottom. You start with the krill, you crunch up the krill, you move your way up the food chain until you get to the big guys. And that's what we did. We started with Gradient, we crunched them up. Got to Rocker, crunched him up. Got apologies and a public $5 million payment. We got into the prime brokers. We just settled with seven of them. Seven of them paid us $5 million back in December to get out. So now we've been paid $10 million. And that's just, I'd say, the part we've been publicly paid, as we move up the food chain. And what's left is the whales. And the whales are Goldman Sachs and Merrill Lynch, which is now a subsidiary of Bank of America.

All I can say is Goldman Sachs held off for years turning over some documents until they were finally forced to in November 2010. Our lawyers reviewed them, and they pretty quickly came to me within a month, or a million pages or something, but they came to me within a month and said, "We now have a RICO action." It's clear that this isn't some out-of-control guy on a trading desk somewhere. This was approved at the highest level; this was an organized crime that Goldman Sachs and Merrill Lynch organized, by the way, along with a couple dirty market makers in New Jersey, who themselves have been fined, I think, $15 million for their involvement in this. They've paid up, and they're taking the 5th in their depositions with us. But who we're really after is Goldman. Merrill are the schlepps. Merrill are the wannabes. Goldman Sachs are the wannabes. And my lawyers are saying, "Look, this isn't a fishing trip." We now have thorough documentation that Goldman Sachs just organized this crime, and it's super clear.

So, we escalated it to a RICO action. Nothing in those RICO statutes says you have to use a gun. Again, it was an organizational matter, not a renegade, one-guy-out-of-control matter, so that's what makes it RICO.

What do you hope to achieve out of this case at this point? We've seen this several times in the past with these large investment banks. They settle out of court, and they don't have to admit any sort of guilt or wrongdoing. Isn't it going to eventually come down to, potentially, a cash settlement out of court?

Patrick Byrne: No chance. No chance. That would be treason, in my view. It really would be treason. These guys are enemies of the republic. They have to be exposed. It has to get to court. Juries have two functions. One is fact-finding, in the sense of wisdom of the crowds; put a bunch of evidence in front of twelve strangers, and they find the facts. That's one purpose. But in some cases, having a jury has a salutary effect simply because no one otherwise would ever know what the real truth is.

In other words, if this were to settle, then everyone would always wonder. The whole thing could be whitewashed. Or, our side would come out and say, "See, that shows we were in the right," and Goldman would come out, or Goldman's shills in the press like Bethany Maclean or Joe Nocera would come out and say, "Oh, well this just shows that Goldman thought it would be cheaper to pay than to fight," or something, and it would never be settled. It's only by getting all of this evidence in front of twelve Americans, and their opinion, their stamp coming down on it, that the public can really know the truth. And so, we're not going to deny that. I will never vote for any settlement.

So, no amount of money for you to walk away on this one.

Patrick Byrne: No amount of money. $20 billion, I'll say, "See you in court." It doesn't matter. This has to get in front of an American jury.

And you have a trial date set for December of this year, correct?

Patrick Byrne: That's correct.

What are you doing in the mean time to prepare for that?

Patrick Byrne: I don't really have to do anything. We have our lawyers doing a bunch of depositions, and they're working their way up through Goldman Sachs. What's funny is Goldman Sachs plays this game. There is something called a "person most knowledgable," which is, when you want to find out what a corporation did, you say, "well, we want to know the person most knowledgable in your corporation on this subject." And that's so you don't get into a deposition and each guy sort of says, "well, I don't know, that's someone else's department." That means they are supposed to put someone up who can answer the questions.

Goldman has played this game forever now where they just designate somebody as a PMK, and the guy comes into the deposition, and every question he's asked, he says, "well, I don't know, that would be somebody else." Well, what's eventually happened is that because each of them has pointed the finger up the chain, to their bosses, we've just been able to grind up the food chain in these depositions within Goldman. I think we've gotten farther in Goldman than anyone's ever gotten. We're way up their dress. I'm only allowed to see a thumbnail sketch of what we find, but I know that it's enough that what comes to court, I believe, will be worse than anything that has come out about Goldman by a long shot.

Do you think it's finally going to result in people going to jail?

Patrick Byrne: Well, ours is a civil case, so we can't send anyone to jail. But, the stuff that I think is going to be exposed about Goldman and what their business model really amounts to is something that the financial press will not be able to spin, will not be able to cover up, in part thanks to good, independent folks like Benzinga. They just start looking silly by ignoring some things. Then, once it gets covered in the press, I don't know if the government will ever act. Wish I had a say in it, but I don't. I know that all we can do is go to civil court and get this in front of 12 Americans.