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Did you see DailyKos.com diarist TocqueDeville's latest post? The one where he gushes over CEO Patrick Byrne and his theories on naked short selling of stock? Reading that post was almost as funny as watching MSNBC quote Martin Eisenstadt last year.

Remember Eisenstadt? The supposed McCain campaign staffer who said Sarah Palin didn't know Africa was a continent? MSNBC broadcast the story, humiliated Palin, then choked on their words when they found out what many of us had known for months: Eisenstadt doesn't exist. He is a hoax perpetrated by two mischievous California filmmakers.

That's pretty much what happened last week on the popular political blog DailyKos.com when one of its diarists fell for a fishy CEO's hoax -- hook, line, and stinker.

Overstock.com CEO Plays Dirty

For years, Overstock.com CEO Patrick Byrne has been conducting a campaign against naked short-selling of stock, which he would like us to believe is the reason his online company has never shown a profit. (Byrne also believes naked shorting caused the global financial meltdown.)

Byrne's cry for help was heard and investigated in good faith by some of the most respected names in financial reporting. Here's a partial roll call:
-- Jesse Eisinger (Conde Nast Portfolio, Wall Street Journal)
-- Herb Greenberg (MarketWatch, TheStreet.com)
-- Bethany McLean (Fortune, Vanity Fair)
-- Joe Nocera (New York Times, NPR)
-- Carol Remond (Dow Jones Newswires)
-- Gary Weiss (Conde Nast Portfolio, Forbes, Business Week)

Their unanimous conclusion? Naked shorting is a controversial practice, but it's not the reason Overstock.com is struggling. (Naked shorting wasn't the cause of the global financial meltdown, either.)

"Blaming short sellers is an old and inartful dodge," explained economic strategist Barry Ritholtz. In other words, when Patrick Byrne blames Overstock.com's troubles on naked short-selling, he is about as credible as quoting Martin Eisenstadt.

Byrne should have been satisfied to be a legitimate part of the national discussion about a questionable Wall St. practice. Instead, the colorful CEO has been paying shills to smear the reputations of all the reporters who discounted his theories. "It has always seemed to me that Mr. Byrne's primary mission had less to do with the supposed evils of naked short sellers, and more to do with making life miserable for anyone who dared to criticize his company," said New York Times columnist Joe Nocera. (Since Overstock.com's inception, the company has failed to issue a financial report for any period that initially complied with GAAP or SEC disclosure rules, and journalists have noticed.)

Patrick Byrne, eBully

To bury his critics, Byrne has been paying people to post comments on Internet message boards using false identities and false information -- a practice known as sock puppeting, one of the dark arts of the Internet.

Blogger William K. Wolfrum learned a lot about sock puppets while uncovering the Eisenstadt Hoax story. So did filmmaker and now legendary hoaxter Dan Mirvish, who together with Eitan Gorlin invented the fake Eisenstadt character for satirical purposes. Wolfrum, Mirvish, and I compared notes for this post as well as for Wolfrum's amazingly detailed report on Byrne, which you can read here.

Mirvish told Huffington Post he's impressed by how much time and effort Byrne puts into his defamatory sock puppertry, although sometimes Team Byrne is downright sloppy. "I'm struck by their repeated efforts to try sock puppeting Wikipedia, which is notoriously rigorous. Wikipedia administrators can easily see which sock puppets come from the same IP address," said Mirvish.

TocqueDeville at DailyKos isn't the first writer to fall for a media hoax. (The award-winning L.A. Times fell for the Eisenstadt ruse.) And Patrick Byrne isn't the only CEO brazen enough to resort to sock puppetry. (Whole Foods CEO John Mackey was caught making pseudonymous posts on financial message boards.) We could all try and imagine how much disinformation is creeping through the Internet, but we'd probably never stop throwing up.

Besides, it's not just the stock market we should be worried about. A democracy requires lively conversation, and a free press informs our dialogue. With newspapers fading away like buggy whips, will it be left up to bloggers to put events into context? And if so, how will readers know which bloggers are credible?

Time for Internet truth squads?

While internet journalism is revolutionary in some ways, it's reminiscent of the bygone days of pamphleteering in others. "It's not clear yet whether blogging is anything more than CB radio," said one newspaper reporter. To live up to its promise, Internet reporting must get better. (And it will.) Meanwhile, hacks like Byrne threaten to ruin online journalism for the rest of us.

As more and more journalists migrate to the blogosphere, maybe it's time to stand up for what the Internet can be. Somehow we ought to shore up the islands of journalistic credibility that are emerging, and at the same time identify professional disinformation groups and marginalize them. Wolfrum and I are experimenting with that today by linking to each other, as well as to the earlier investigative efforts of Eisinger, Greenberg, McLean, Nocera, Remond, and Weiss.

Ten years ago, it really didn't make much sense for Fortune and Forbes to collaborate on a story, but today it might. Because the crucial battle isn't between journalists and bloggers, it's between journalists (both old and new media) and the growing number of Internet spammers -- like Patrick Byrne and his staff -- who are trying to hijack the news business.

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UPDATE 4.29.09: For years, Patrick Byrne has been invited to prove that naked short selling damaged his company -- or any company for that matter. So he finally put together a little slide show. Forensic accountant Tracy Coenen looked at the presentation and concluded, "Byrne's data proves nothing about naked short selling." You can read Coenen's summary on Fraud Files.

UPDATE 7.18.09: The truth squad doin' its thing.

UPDATE 7.28.09: Heads up, real journalists. Fake journalist Patrick Byrne is using Spyware to get inside your computer. A DailyKos diarist caught Team Byrne red-handed. (Right-winger Byrne's behavior is so strange these days, he's even turning off other conservatives.)

UPDATE 8.6.09: Convicted felon turned corporate whistle-blower Sam Antar believes Byrne's personal attacks on journalists are just a sideshow to distract everyone from the fact that Overstock.com "is cookin' the books." You can read Antar's open letters to the Securities and Exchange Commission here and here.

UPDATE 8.20.09: As soon as Sam Antar's spirited interview on National Public Radio was posted to the NPR Web site yesterday, Patrick Byrne's #1 paid cyberstalker Judd Bagley went to work to discredit the white collar crime fighter. As you can see by this amusing screen grab from today's Comments thread, NPR wisely deleted Byrne's attempt at character assassination. Welcome to the truth squad, NPR.

UPDATE 9.17.09: Patrick Byrne announced that Overstock.com Inc. (OSTK.O) has been subpoenaed a second time by the SEC.

UPDATE 10.23.09: Fox Business Channel featured Patrick Byrne as an expert on the SEC, yet never mentioned that Byrne's company, Overstock.com, is currently being investigated by the SEC. I wonder how that happened. While on camera, Byrne claimed SEC officials are, or were, on the take. Who looked more sh*t-faced at the end of FBN's "Happy Hour" -- the network or Patrick Byrne? Our judges called it a split decision.

UPDATE 11.16.09: In a move one might characterize as three steps from crazy, Overstock.com CEO Patrick Byrne fired his company's auditors and today filed an unaudited late Form 10-Q with the SEC. Crazy like a fox, or just, uh, crazy? You can read Byrne's explanation here. (He quotes Nietzsche, which is a big red flag.) You can read fraud examiner Tracy Coenen's take on the continuing circus here.

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