When Gov. Jon Huntsman Jr. wanted lawmakers meeting in special session last month to adopt a new law targeting stock trading abuse, few considered it urgent, and Wall Street officials say the law will hurt publicly traded Utah firms.
But Patrick Byrne wanted it. And the CEO of Overstock.com, a Utah-based online retailer of excess inventories, gave $75,000 to Huntsman's 2004 gubernatorial campaign by far the most that any individual gave him.
Huntsman spokesman Mike Mower said Huntsman did speak briefly with Byrne in a telephone call on the subject during the 2006 Legislature, but not since. And Scott Blevins, spokesman for Byrne, insists the big donations did not grease enactment but rather "the importance of the issue alone got lawmakers' attention."
But many bills that failed in the 2006 general session didn't get the special treatment of going on the May 13 special session agenda.
Mower said the bill "was not placed on the (special session) call for any one business. It is disingenuous to give that as an example" on how the special session agenda was set by the governor.
"We also put $2 million for Medicaid dental on the call, and we got no donations" for the campaign on that issue, said Mower. "You would be hard pressed to find one instance where the governor has acted on behalf of any special interest. It's his practice to weigh what is in the best interest of the state, make a decision and move forward."
Byrne is not only the top individual donor to Huntsman, he even gave more than the Huntsman Corp. (which provided $63,634), or any of the governor's family members. (Brother David gave the most from the clan, $40,000.)Byrne is the state's largest individual political donor, having given at least $676,500 since 2003, a study by the Deseret Morning News last month showed. He is the state's fourth largest donor to Republicans, and the state's fifth largest donor to Democrats. His father, Jack, is the state's third largest political contributor, tipping the donation scales at $510,800.
Taking no chances
Under the Utah Constitution, only the governor can call a special legislative session, and he alone decides the session's agenda.
While the stock trading abuse bill that passed in a May 13 special session, sponsored by Sen. Curt Bramble, R-Orem, had barely failed the last day of the regular 2006 Legislature, many bills died the final night of the general session and were not placed on the special session's call by Huntsman.
That bill was headed for passage the last night of the 2006 Legislature, Mower said. "It was like third on the House (bill list) board when time ran out; and had passed the Senate" unanimously, he noted.
The issue was ripe, said Mower, and Huntsman decided to put it on the special session call not waiting for January's 2007 Legislature because, "it was the right thing to do in putting our state at the cutting edge of competitiveness for small- and mid-cap companies."
Taking no chances, Byrne hired an "A" list of Utah lobbyists this year, including Frank Pignanelli (former Utah House minority leader) and Doug Foxley (adviser to several GOP governors), as well as others. Blevins also said that "Overstock met with legislators and people in the executive branch to explain the situation and how it impacts Utah."
As various members rose in special session to support the bill on the House floor, Overstock lobbyists applauded and cheered in one of the House's glass-enclosed galleries. It passed the Senate 28-0, and passed the House 65-1. Such overwhelming support was another reason to put it on the special session agenda, Mower said.
It should help Byrne, who has been waging a high-profile war with Wall Street over "naked short selling."
In a lawsuit and statements to the press, he has accused research firms and hedge funds of conspiring to profit by driving down Overstock.com's stock prices in complicated maneuvering involving "short selling."
Short sellers borrow stock in hopes that its price will decline so they can return it to brokers and pocket the difference.
Overstock.com contends it has been a target of "naked short selling," where brokers send IOUs they cannot honor through a stock clearinghouse when they run out of shares to lend.Patrick Byrne contends some brokers never settle such trades (if prices rise), allowing short sellers to profit without needing to assume any risk. The practice tends to lower a company's stock price by artificially creating more sellers than buyers.
The new Utah law requires brokers to quickly and regularly disclose trades that fail to settle as scheduled. Fines for violations start at $10,000 a day and can increase to cover the sum total of all unsettled trades.
Steve Judge, senior vice president of the Securities Industry Association, unsuccessfully urged Huntsman to veto the bill in a letter saying it "could substantially and adversely impact Utah and Utah based companies in the future."
SIA spokesman Travis Larson told the Morning News that while the bill supposedly targeted naked short selling, it also affects all short selling as well as other long-term investments that do not close as scheduled.
Judge wrote to Huntsman, "This unique requirement and fear of liability for missed notifications may cause member firms to limit their interaction with Utah companies."
He added, "This is the opposite of the bill supporters' hope . . . would attract business to Utah."
Larson said the SIA in considering many options to fight the new law, "including the option of legal recourse."
However, Blevins said the newly enacted bill "reaffirms an existing (federal) law that is not being enforced. Wall Street bankers or securities firms should only be concerned if they are breaking the law. Fortunately, we have a governor and Legislature who believe the rule of law should be upheld."
The bill affects only trading in Utah. And while most trading occurs elsewhere, the new law gives Byrne a small victory.
"I think it is a starting point," Blevins said. "It is common for legislation to start at the state level. . . . Its purpose is to shed light on the issue of unsettled trades."
He also said that big donations by Byrne may actually have made passage of the new law more difficult instead of easy.
"It is more of a hindrance because of the perception problem. No one wants to be accused by a reporter of having improper motives. This story is a good example. Our governor is highly ethical." Blevins adds that Byrne has made no donations to Huntsman since naked short selling became an issue with Overstock.com.Among the donations that Patrick Byrne or his Overstock.com have given in recent years include $25,300 to the Utah Democratic Party; $1,000 to state Sen. Carlene Walker, R-Sandy; $250 to state Senate Minority Leader Mike Dmitrich, D-Price; $5,000 to Rep. Chris Cannon, R-Utah; $5,000 to Sen. Orrin Hatch, R-Utah (and $5,000 more to a Hatch political action committee); $2,000 to Sen. Bob Bennett, R-Utah; and $1,000 to Rep. Jim Matheson, D-Utah.