He grabs a Diet Coke, a pack of gummy bears and some M&Ms from a minibar hidden in a tasteful armoire, settles on a plush cream-colored sofa and begins to boast about the circumstances around which the Senegalese-American celebrity sought him out. “I hear he’s a musician. We share ambitions for Africa,” says Byrne, popping a gummy bear into his mouth.
Byrne, who bought Overstock.com in 1999 and ran it for two decades, has always been a man of many ambitions. High on his list: transforming the African continent and its 1.3 billion people via blockchain technology. Like an infomercial for the nascent decentralized, distributed ledger technology that underlies cryptocurrencies like bitcoin, he waxes poetic about a future in which corruption is wiped out, people are freed from poverty, and developing nations can leapfrog ahead by putting government functions like voting, property records and central banking on the blockchain. Characteristically low on his priority list: the economic interests of the thousands of shareholders in his publicly traded former e-tailing giant.
For the last several years, Byrne, 56, spent no fewer than 220 days a year on the road spreading his blockchain gospel, despite the fact that Overstock was hemorrhaging cash. “Over the next five years, we can change the world for 5 billion people,” says Byrne. “At least a billion. Maybe 5 billion.”
Byrne is vague about why he is in the nation’s capital this week and mentions a meeting with representatives from Africa about his blockchain projects. However, he later reveals that he had been meeting with the Department of Justice. Byrne claims he’s been serving as a government informant, feeding information since 2015 to the “Men In Black,” as he puts it, on Maria Butina, a vivacious Russian grad student with whom he struck up a romantic relationship. She is currently serving an 18-month prison sentence after pleading guilty to conspiring to act as a foreign agent, in connection with her efforts to infiltrate conservative political circles before and after the 2016 presidential election.
In his resignation letter, Byrne cited his involvement in “certain government matters” as complicating “all manner of business relationships, from insurability to strategic discussions regarding our retail business.” Byrne says what he has done (exactly what that was remains unclear) “was necessary for the good of the country, for the good of the firm.” Byrne concludes his letter by stating cryptically:
“Coming forward publicly about my involvement in other matters was hardly my first choice. But for three years I have watched my country pull itself apart while I knew many answers, and I set my red line at seeing civil violence breaking out. My Rabbi made me see that ‘coming forward’ meant telling the public (not just the government) the truth. I now plan on leaving things to the esteemed Department of Justice (which I have doubtless already angered enough by going public) and disappearing for some time.”
In a call from his car minutes after delivering a farewell speech to his surprised employees, Byrne said he had his bags packed. “I will be sitting on a beach in South America shortly, and that is all I want to think about,” he says. “I want to focus on getting back into good shape, doing yoga and becoming a vegetarian.”
Welcome to Patrick Byrne’s bizarre world. The existential crisis Byrne is putting his Salt Lake City-based company through comes after an impressive career pioneering e- commerce. Nearly two decades ago, Byrne was lauded as “The Renaissance Man of E-Commerce.” The closeout store he took control of in 1999 for a mere $7 million was on its way to becoming an e-tailing phenom and eventually came to command a market capitalization of $2.2 billion. But in the hypercompetitive digital age, disruptive business models don’t last long, and today Overstock— once an innovator—is a has-been.
This isn’t any secret. By the time of his resignation, Byrne had all but given up trying to compete with the likes of Amazon and Wayfair, and he had spent the last two years unsuccessfully attempting to unload Overstock’s retail business. Just as e-commerce captivated Byrne at the turn of the millennium, blockchain was his shiny new obsession. So Byrne funneled Overstock’s dwindling resources into blockchain ventures—more than $200 million since 2014. About 30% of that sum went into 18 early-stage companies that are building a suite of blockchain technology products he wanted to sell to governments. The rest has been seemingly squandered on a personal vendetta: Overstock is creating a blockchain version of Nasdaq, which Byrne believed could right some of the evils of Wall Street—particularly the naked short-selling that he claims plagued his company for much of the last 15 years. Byrne attracted an eclectic mix of allies to his corner doing what he called “God’s work,” ranging from Akon and the World Bank to the infamous short-seller Marc Cohodes and the city of Denver.
But the walls closed in on Byrne’s quixotic adventure. Overstock’s heavily shorted stock plummeted from $87 in the beginning of 2018 to about $17 today as some $1.6 billion in market capitalization has evaporated. Once reliably profitable, Overstock lost $206 million last year and $110 million in 2017. In recent months, Byrne fired some 400 people.
Even worse were the cracks forming in Overstock’s new strategy. The company’s prized crypto offering, Tzero, is the subject of an SEC investigation, and a highly anticipated private equity investment into the fledgling exchange has withered away. Its blockchain investment arm, Medici Ventures, has yet to generate meaningful revenues and racked up losses of $61 million in 2018. With many big companies now embracing blockchain technology—including a bold new plan from Facebook—Byrne’s strategy shift to blockchain suddenly looks as challenging as Overstock’s online retailing business.
Eventually even Byrne’s most loyal shareholders—blockchain believers among them—were in open revolt. Fumed Byrne in May, after investors bombarded him with calls and emails when he sold 900,000 shares of stock: “Frankly, I had no idea that shareholders would demand explanations of why and how I might want to use my cash derived from my labor and my property to pursue my ends in life.”
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September 30, 2019