Corporate Fraud Update, Overstock.com Department
My favorite corporate sleazebags, the management of Overstock.com, are the subject of two excellent posts over the past few days by my fellow white color crime aficionados, reformed felon-turned antifraud crusader Sam Antar and forensic accountant Tracy Coenen.
Overstock is a worthy subject for several reasons, notably (for me at least) its sustained effort to silence critics. These two latest blog posts do an excellent job at something the SEC has failed to do, which is to call this company's management to account.
Tracy's post, here, is an excellent digest of the ongoing Overstock train wreck. Sam today describes the kind of legal peril that theoretically faces the company because of its disclosure violations.
I say "theoretically" because Overstock has gotten away with murder in the face of an indifferent SEC. Let's hope that one of the things President-elect Obama will be changing is a federal securities apparatus that has given up on enforcing the securities laws.
Tracy's rundown of Overstock's long list of transgressions is worth repeating:
In the latest Overstock screwing of its investors, the company on Friday announced plans for yet another secondary stock offering. That's what failing companies do: when they can't sell products, they sell stock.
[One constant over the past two years] has been the criticism of fans of Patrick Byrne and Overstock. Byrne has been trying to silence his critics, and even went so far as to hire cyberstalker Judd Bagley to threaten and intimidate the company’s critics.
The fact always remained that there were inconsistencies in disclosures, unusual financial statement items, and a general appearance that management at Overstock.com was not forthcoming in its presentation of financial results. The questionable matters included:
- Claiming the company was improving, while financial measures showed a decline
- Assertions about inventory levels, quality, and reserves
- Failure to disclose a SEC subpoena of Patrick Byrne until almost a year after it was issued
- The mysterious departure of members of the Overstock.com Board of Directors
- Patrick Byrne’s tendency to spend time posting on message boards, rather than trying to run his terrible company
- Manipulation of earnings numbers in an attempt to make the business appear better than it is
- Violation of Regulation G, according to SEC guidance on EBITDA calculations
- The tendency to engage in “Black Ops” on the internet when negative financial information is around the corner
- More manipulation of earnings numbers
- More pretend conspiracies courtesy of Patrick Byrne
- Lies and questions about the company’s adherence to GAAP
- False statements about the SEC’s closure of its investigation of Overstock.com
- Repeated irregularities in the financial statements and disclosures made by Overstock.com
- Materially overstating EBITDA
- Massive losses year after year, accumulating to almost a quarter of a billion dollars by mid-2008
The critics kept writing, and now the truth comes out. Byrne and his paid stooges continuously tried to discredit the critics, claiming there was some conspiracy to take down Overstock. The truth has always been that Overstock.com is a horrible company run by an incompetent and mentally unstable CEO.
Clearly Overstock CEO Patrick Byrne believes investors are as dumb as he is inept, which is saying a lot. The stock sold off sharply just before the Friday announcement, indicating to me that at least some investors -- the ones with inside information -- know better than to hang on to this dog.
© 2008 Gary Weiss. All rights reserved.