After reading yesterday's news release from (NASDAQ:OSTK), I couldn't help thinking it's time to short the beejezus out of it.

Yeah, I know, such an opinion is contrary to the thoughts of two of my colleagues. Fool co-founder David Gardner -- who could stuff me in the ol' career guillotine if he wanted -- picked the stock for his Motley Fool Rule Breakers newsletter, and Bill Mann, who has already forgotten more about investing than I know, selected the stock for Motley Fool Hidden Gems long before. But somehow, I don't think they'll be too surprised by my thoughts today.

After all, they made those calls before CEO Patrick Byrne went off the deep end. I mean that. These days, Byrne is looking nuttier than my Aunt Betty's chocolate bars.

Mulder's got nothing on Byrne
I sold my Overstock holdings a long time ago, when Byrne started complaining about shorts and admitted that he'd timed a Thanksgiving-season sales release in order to "knee shorts in the groin," or something to that effect. Since then, things have gotten much more strange.

We've already seen that he's on a mission to convince the world that he is a victim of a massive short conspiracy. For a while, the "naked" thing attracted the most attention. Unfortunately, I tend to believe the compelling arguments that suggest Byrne is, at the very least, being less than forthcoming about his relationship to the tinfoil-hat crowd -- including the now-famous Bob O'Brien (a cloak-and-dagger alias) -- who continue to promote this issue well beyond the bounds of logic.

Yesterday's news revealed that Overstock was actually filing a suit against several characters in the regular short game. (It's also a PR opportunity for the lawyers!) The accusation is that David Rocker and Gradient Analytics, among others, have conspired against Overstock. The suit alleges unfair competition under business and ethics code 17200 and 17500, as well as negligence under California common law.

Why is this filed in California? In the tech-happy Bay Area? My first guess was that Overstock figured it would be a lot easier to find a sympathetic hearing out there. But the real reason would appear to be that this is the stomping ground of one Mary Helburn, the lone shareholder who is put forward as the sympathetic average investor in this entire litigation scheme.

Further down the rabbit hole
Merely a random victim? Not a chance. Mary Helburn just happens to be the executive director of NCANS, the National Coalition Against Naked Shorting. This is the same organization that produced a video featuring Byrne (who claims that he's not involved in this on Overstock's behalf), as well as a person called Mary Campbell. In the video, she claims that recent portfolio losses of 50% are entirely the result of naked shorting. Some allege that Campbell is none other than Mary Helburn herself.

If you want more conspiracies, consider that Bob O'Brien, who also appears in the film, is allegedly identified (I haven't seen any proof of it) as one James Dale Davidson, founder of Agora Publishing, famous for its penny-stock promotions and other stock market absurdities.

Now, back to the surface for a breath of fresh air and a closer look at the lawsuit. It alleges that shorts like Rocker are helping Gradient put together its so-called "independent" -- and unflattering -- research reports, and that because of this, Overstock's shares have dropped from the $70s toward $30. Overstock and Helburn want their money back.

Pardon my insensitivity, but boo-friggity-hoo. I don't know anyone except for dear Ma and Pa Kettle who actually thinks stock opinions from the likes of these research tanks are unbiased. If there are specific violations of securities laws here -- like trading on knowledge of pending releases or false information -- why don't we see some activity on that front? It's telling that the complaint (as far as I can see) doesn't make a single quibble about the information Gradient provided, just the allegation that it was made with a short-seller's input.

So much for the philosophy major's logic
Even if it's true that Rocker and these analysts are in bed together, there's absolutely no logic in the argument that their alleged conspiracy is responsible for the cratering of Overstock's share price. Correlation does not prove -- or even imply -- causation. Dr. Byrne (the Ph.D. is in philosophy, from Stanford) ought to have studied enough logic to know that.

(If he's a bit rusty with his cum hoc ergo propter hoc, then perhaps he'd be interested in helping me market my new line of shark-repellent keychains. Since I started bringing these fantastic fobs into Fool HQ, they have been 100% successful in keeping sharks from entering our offices; there has not been a single shark attack. A bargain at $19.95, folks.)

In truth, I'm sure Byrne is completely aware of the logical fallacy in this complaint. But I'm sure he's also aware of the dearth of logic skills in the average courtroom and hopes that he can slide this one past. But that's a dangerous precedent to set.

If I short Overstock and he comes up with more of his trademark PR designed to make the company look good and raise the share price (the "knee in the groin" thing, well-timed personal share buybacks), is he prepared for my lawsuit alleging conspiracy and unfair competition? How long does he want to engage in this petty tit-for-tat? In the end, this cry for attention does a lot to undermine the esteem I had for him when he spoke here, and it certainly contradicts remarks he made about his belief in old-fashioned capitalism.

Put up or shut up
Here's a crazy idea: Maybe Overstock's share price has dropped for some other reason? Setting aside the possibility that aliens from the Shortokleptia Nebula have directed their money-sucking rays onto the ticker OSTK, I have a couple of other theories. Maybe it wasn't worth $70 a share to begin with. (And maybe it's not worth $40 today.) Maybe it's worth less precisely because of investor uncertainty over its lackluster results, along with an unsettling pattern of excuse-making from the head cheese himself.

Evidence of slowing sales growth and big losses has been conveniently brushed aside too often in the recent past. Everything seems to be blamed on "one-time charges" these days. I've got very little tolerance for that. I think our coverage of these issues ought to hold Byrne more accountable, as do these pointed comments from Jeff Matthews.

Step away from the tinfoil
It gives me no particular joy to say all of this; Byrne has always been great to us, and he even spoke at one of our meetings. I like overeducated weirdoes. But my bottom-line assessment is this: Byrne needs to ditch his unsavory crowd, take off the tinfoil hat, and do his job.

Byrne's job is to run the business toward profitability, not worry about the big baddies out there conspiring to take him down. As it is, he's got enough problems to cope with, including competition from Motley Fool Stock Advisor pick (NASDAQ:AMZN). Overstock is also making little headway in its doomed effort to capitalize on disgruntled eBay (NASDAQ:EBAY) users. Byrne needs to cope with the reality that Web shoppers are agnostic; they can hunt for better deals than Overstock's simply by using tools from Google (NASDAQ:GOOG), Yahoo! (NASDAQ:YHOO), or Microsoft's (NASDAQ:MSFT) MSN.

If Byrne and Overstock can deliver top- and bottom-line results, this short problem will take care of itself. If there's profit to be made by going long on Overstock, investors will do it. Until then -- and as long as he's cozy with shady characters like Mary Helburn/Campbell and "Bob OBrien" -- Byrne should expect more shorting, legitimate and otherwise. And if he doesn't drop the nutty persecution complex, I'll probably place my bets on the short side as well.

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Seth Jayson used to think retail was for suckers. At the time of publication, he had no position in any company mentioned here. And he promises not to read any more emailed ravings about the big naked short conspiracy. He's heard enough from the Lone Gunmen. View his stock holdings and Fool profile here. Fool rules are here.