Thursday, April 02, 2009

Today's Overstock.com Chuckle: Questionable Payment to Director/Consultant

One of my favorite pastimes is reading humor websites, and one of the best is the Yahoo portal for Overstock.com press releases. Yesterday's installment was a real gem. Overstock had two bits of really bad news. One, yet another director resignation, was slathered over with platitudes. The other wasn't announced at all.

This corporate fraud poster child, which just used accounting gimmicks to eke out $1 million in paper fourth-quarter profits (an $800,000 loss without the smoke and mirrors), pissed away that imaginary "profit" by paying real bucks to the departing director--$1.25 million in fees "in connection with the termination of the consulting arrangement" with James V. Joyce. That's in addition to whatever other fees Joyce might have gotten.

Overstock.com CEO Patrick Byrne omitted mention of the odoriferous consulting payment in a happy-talk press release announcing the resignation, in which he expounded on what a great guy Joyce is without saying a word on what he did to earn all those bucks.

The dirty details were confined to a Form 8-K that many small investors, particularly its brainless core of semi-literate message board followers, would probably not even know exists. Those investors provide the core of liquidity that Byrne needs to keep share prices up, and he knows it. He also knows that the SEC won't do anything about his constant effort to bamboozle his shareholders.

White collar fraud fighter Sam Antar has more in this blog post. Sam notes:

Overstock.com's $1,250,000 contract termination payment to former Board member James Joyce is over five times the sum of $225,000 in consulting services "authorized to be paid to Mr. Joyce for services rendered to the Company during 2007." The company has not disclosed additional amounts in consulting services paid to Mr. Joyce in 2008 or 2009 to-date, aside from the termination fee.
and

A shrewd person posting on the Yahoo message board noted:

And another thing - why does a retailer that's been in business a decade need "management" consulting services (rhetorical question, I know the answer)? What aspect of "management" was Mr. Joyce consulting on? How many FTE's were consulting under Joyce's banner that would require a contractual payout of a whopping 1.25 million? How many man hours does that payout represent?

Let's see, the avg cost of a non top-tier name "management consultant" has gotta be billed at around $150/hr or so these days.

Sooooooo, that's a payoff of over 8,000 man hours.

Ok hec, let's say Joyce was worth every penny of $500/hr - that's a payout of 2,500 man hours. Under most standard per-diem consulting contracts, the contracting company only has to provide 2-weeks termination warning or forfeit 2 weeks of billings. Let's see...80 hours of billable hours at the fantastic rate of $500/hr = $40,000.

Ok longs - speak up - is THIS the kind of shareholder equity stewardship you are expecting from Patrick Byrne?

Indeed, one of the questions raised by this absurd payout, which you can bet will not be raised by the cable TV idiots who occasionally lob softball questions at Byrne, or the somnolent analysts who snooze through his quarterly conference calls, is this:Precisely what did Joyce do to warrant such a payout from a cash-starved company? And here's another: Why did Joyce quit? The real reason, not the baloney.

© 2009 Gary Weiss. All rights reserved.

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