Monday, October 05, 2009

Patrick Byrne Repeats 'Eagle Scout Defense' to SEC Investigation

Patrick Byrne's nemesis featured in Crain's

Crain's New York Business today has a terrific cover story on white collar crime fighter Sam Antar, online here (subscription or free trial required). It's filled with terrific nuggets of information, one of the most interesting of which is that CEO Patrick Byrne repeats, word-for-word, what is shaping up to be Overstock's lame defense of its accounting irregularities: the "Eagle Scout defense."

Repeating what he told the Salt Lake Tribune in an ethnic-slur-laced interview, Byrne said that his defense to the SEC investigation, which was clearly prompted by Antar's meticulous analysis of the company's accounting, is that his accountants, who he alleges would be to blame for any irregular accounting (Heaven knows, not him!) are "Eagle Scouts."

In the Tribune he said:
"Our accounting department is a bunch of square Utah Eagle Scouts," Byrne said. "Their instructions were to keep the books conservatively. In 2006, our auditors said we were being too conservative."
In Crain's he said:
“Our accounting department is a bunch of square Mormon eagle scouts, and their orders are to be as straitlaced as possible,” he says.
Putting aside the inappropriate and patronizing reference to his accountants' alleged religion--this guy is really hung up on people's religion, isn't he?--it's striking how Byrne is trying to shift blame to underling, faceless "accountants."

The problem is that it won't wash.

Thanks to a little-enforced post-Enron law known as "Sarbanes-Oxley," Byrne, not faceless "Eagle Scouts" wearing eyeshades, is personally responsible for Overstock's financial statements and signs off on them, attesting to their truthfulness--something designed to prevent precisely this kind of blame-shifting to "the Mormons in our accounting department."

CFO Steve Chestnut also has to place his John Hancock on the financial statements with a Sarbox attestation--scouting merit badges and religious affiliation notwithstanding.

It's also sheer bull. Ever since he started examining Overstock's finances in early 2007, Sam Antar has been telling Byrne, in both blog postings and emails, that his accounting has not been in accordance with Generally Accepted Accounting Principles. Sam has detailed how Byrne created a "cookie jar reserve" that he has been using to minimize losses and create a long-promised fourth quarter "profit" that was actually a loss.

Byrne has acknowledged seeing Antar's emails and posts from day one, and has responded by mocking Sam, attacking him on his conference calls, and siccing his nauseating Internet stalker, Judd Bagley, to smear him on the Internet. Bagley has stalk him pretty much everywhere, contacting his estranged wife, and even turned up to attack Sam at the NPR website, when Sam gave an interview not mentioning Overstock at all.

Unless the SEC decides to take a dive, again, and ignore Byrne's falsifying of financial statements, Byrne is going to find it hard to evade responsibility by blaming his crookedness on unnamed "Mormons."

I have a sneaking suspicion that we're going to see a lot more Yiddish curses and LDS-blame-shifting from this character in the months ahead. Byrne's mummy and daddy really need to talk with him (maybe when they send him the monthly trust fund check) about talking about people's religion. It tends to... no, on second thought, better not say anything.

© 2009 Gary Weiss. All rights reserved.

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