Dartmouth University has, as its motto, the Latin phrase, Vox clamantis in deserto, which translates as ‘a voice crying in the wilderness.’ For Dartmouth graduate Patrick Byrne, this phrase takes on a uniquely fitting meaning, as Byrne has spent an important part of his professional life as a lone voice of warning in a wilderness of doubt.
The onset of the global economic meltdown in 2008 made criticism of Wall Street quite fashionable. Before then, not so much, particularly among mainstream business journalists, who treated hedge fund and investment banking managers like rock stars above reproach. Beginning in 2005, Byrne started a raucous and controversial campaign to expose some of the very activities that would go on to factor prominently in the 2008 collapse. This was a very risky move for Byrne, who, as CEO of a public company, would normally have been expected to treat all things Wall Street with reverence.
It all began in 2004 when Byrne received an anonymous call from a man who claimed to be aware of a conspiracy to manipulate the share price of Overstock.com. The conspirators, the man warned, were short selling hedge funds, which stood to profit should Overstock.com shares lose value, and thus were working to manipulate the shares down. Byrne, who had experience working on Wall Street, was skeptical. In response, the caller made some predictions which, when fulfilled, he expected would convince Byrne he knew what he was talking about.
As Byrne puts it, “The value of a theory is in its ability to make accurate predictions. Well, everything the mystery caller predicted would happen, did in fact happen, and in short order. With that, I knew he was someone worth listening to." Byrne started investigating. What he discovered, deeply disturbed him.
Byrne, whose father was also CEO of a large company, was raised to regard Wall Street as hallowed ground playing a vital part in ensuring America’s economic viability. “Quality education and capital markets are the keys to the American Dream,” Byrne said.
When deciding how to respond, Byrne, who holds an advanced degree in moral philosophy, a black belt in Tae Kwon Do and nearly pursued a career as a professional boxer, fell back on his training.
Overstock.com CEO Patrick Byrne
“I decided to fight back, not because of what these bad actors were doing to Overstock.com, but because of what they were doing to America’s capital markets – how they were corrupting them,” Byrne said. “It was the right thing to do.”
Byrne publicly launched his fight against price-rigging corruption on Wall Street in August of 2005, when he hosted a media conference that named names and pulled no punches in revealing a very large iceberg of Wall Street corruption. As one might expect, Wall Street did not take this unwanted attention lying down. Instead, Byrne became the subject of a vigorous smear campaign meant to cow him into submission. But in many ways, these tactics only strengthened Byrne’s resolve. In March of 2008, investment bank Bear Stearns collapsed, due in large part to the same manipulative short selling Byrne had worked so hard to expose. Seeing the beginning of the end, Byrne created a blog, DeepCapture.com, with a small staff dedicated entirely to shining a light on the seamy underbelly of Wall Street. Byrne himself is a frequent contributor to the blog.
The blog’s name stems from an economic concept known as “regulatory capture,” which describes a condition endemic to free markets, wherein the regulator – in this case the Securities and Exchange Commission (SEC) – becomes “captured” by the same entities it is charged with policing. Byrne insists regulatory capture is a key factor in the economic collapse of 2008. Despite the best efforts of DeepCapture.com, manipulative short selling continued unabated and reached a crescendo with the collapse of Lehman Brothers in September of 2008. Finally recognizing the systemic dangers posed by its unwillingness to fulfill its regulatory role, the SEC began cracking down on manipulative short selling and took action that would largely eliminate the practice among stocks traded on major exchanges.
Manipulative short selling may no longer be a major risk to America’s capital markets, but Byrne continues in his role as advocate for economic reform. Today, he spends much of his free time advocating for adoption of cryptocurrencies, including the well-known Bitcoin.
“I’m an adherent to the Austrian school of economics, which places a high value on gold as an inflation-proof store of value,” Byrne explains. “Cryptocurrencies, like Bitcoin, have many of the virtues of gold, in addition to being made for online trading. Unlike fiat currencies, digital currencies might keep things working in the days following a complete monetary collapse.”
Ever one to put his money where his mouth is, in January of 2014, Byrne saw that Overstock.com became the first major online retailer to accept payment in Bitcoin – a decision that has generated an additional $2-million in revenue for the company, in addition to urging many other retailers toward acceptance of cryptocurrencies. Many credit Byrne with taking one of the biggest steps toward ushering cryptocurrencies into the mainstream.
Bitcoin and Wall Street reform are not as removed from one another as you might think. Byrne envisions a time when the same open and decentralized accounting that makes cryptocurrencies unique provides the backbone for a new kind of stock market. This would allow shares to be exchanged peer-to-peer on the back of Bitcoin-like technologies, in a way that makes manipulative short selling impossible.
Does such a radical idea shock you? If so, that probably suits Byrne just fine, for he, more than most any other person you’ll meet, seems to relish his role as a patriot’s voice crying in the wilderness.