Senate Panel To Grill Hedge Funds

The Senate Judiciary Committee will hold a hearing Tuesday on the short-selling activities of hedge funds and independent analysts, a subject that has generated headlines and lawsuits alleging collusion and market manipulation.

The Senate panel is still finalizing a list of witnesses, but Overstock.com Inc. Chief Executive Patrick Byrne wasn't invited and won't participate, according to congressional staffers.

The head of the Salt Lake City-based online discount retailer has sued hedge fund Rocker Partners and small stock-research firm Gradient Analytics Inc., alleging they colluded to have Gradient issue negative reports on companies that Rocker had sold short.

"Naked short-selling is against the law, and we're concerned about it," a spokesman for Sen. Orrin Hatch, R-Utah, a Judiciary Committee member, told Dow Jones.

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Rocker is now known as Copper River Management, whose general counsel, Steven Tsimbinos, declined to comment on whether someone from the Millburn, N.J., firm would testify to the Senate panel next week.

Gradient, of Scottsdale, Ariz., has been approached informally about participating but won't decide until it receives a written invitation, according to spokeswoman Karen Hinton.

Hedge-fund trade groups have been invited and at least one is expected to attend. Managed Funds Association President John Gaine said someone from the group will testify, and the Coalition of Private Investment Companies offered to send its managing director Andrew Lowenthal.

John O'Quinn, the Houston, Texas, lawyer who has filed class-action lawsuits targeting naked short sales, was invited but can't attend, a spokeswoman said.

Economist Rob Shapiro, a Commerce Department undersecretary during the Clinton administration, said the Senate panel approached him but hasn't confirmed whether he is on the witness list. Shapiro, who is chairman of Sonecon LLC, a Washington, D.C., economic advisery firm, and a paid consultant to O'Quinn, said that if he testifies, "my testimony will be on the systemic nature of naked shorts."

Short sellers borrow shares for sale and profit if the stock price declines. While the practice is legal, Byrne has been vocal in attacking "naked" short sales in which sellers don't borrow shares before selling, which he says may have destroyed hundreds of small companies while enriching hedge funds and Wall Street bankers.

U.S. securities regulators updated short-selling rules in 2004, but critics, such as Byrne, say they haven't been effective in cracking down on abusive short sales.

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