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Overstock.com Chief Executive Patrick Byrne feels vindicated.

The Utah-based online closeout retailer was notified Friday by the U.S. Securities and Exchange Commission that a two-year investigation of his company has been dropped.

Byrne produced a letter, written Wednesday by Kenneth Israel Jr., director of the SEC's regional office in Salt Lake City, saying the federal agency's probe "has been completed as to Overstock.com, against whom we do not intend to recommend any enforcement action." A second letter said that no enforcement action is contemplated against company officers and directors.

"As soon as it started," Byrne said, "I told [SEC investigators] 'You guys are going to waste a lot of time and money and find nothing.' They spent two years probing - they were fair and judicious - and at the end they came to exactly the conclusion I predicted when I started my campaign to expose corruption on Wall Street and to prevent the kind of systemic meltdown that is exactly what we're experiencing in slow motion now."

Byrne has been an outspoken critic of what is known as the "naked shorting of stocks," an illegal practice in which stockbrokers, dealers and investment consultants profit from falling prices by selling shares without first borrowing the stock. The practice can artificially inflate trading volume and, in turn, suppress the price of a stock.

He contends shares of Overstock.com, which sells discounted brand-name merchandise over the Web, declined because of short sales manipulation. Overstock.com filed suit in 2005 against Gradient Analytics Inc. of Scottsdale, Ariz., contending the research company issued false and misleading reports in collaboration with the New York hedge fund Rocker Partners LLC to drive down the cost of Overstock.com's shares.

Since then, both Overstock.com and Gradient Analytics have been subjected to SEC investigations that yielded no enforcement actions. In support of Byrne's position, the Utah Legislature passed a law cracking down on the practice. Overstock.com filed a $3.48 billion lawsuit in February 2007 alleging securities violations against a dozen brokerages and 100 John Does. Gradient Analytics responded to Byrne's attacks with a libel lawsuit in April against Overstock.com.

With the SEC letter now in hand, Byrne said he plans to keep fighting corruption on Wall Street, the kind of illicit stock manipulation that he claims has traumatized big financiers such as Bear Stearns and Lehman Brothers.

"The whole intellectual battle has turned," he said. "The same people who three years ago were saying I'm nuts have changed their tunes. Everybody gets that what I've been saying is going on is going on."

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