Monday, November 23, 2009

Grant Thornton to SEC: Overstock.com Lied

It's not every day that you see a filing like this: a letter from Grant Thornton to the SEC, which Overstock.com was forced to file as a disclosure upon pain of being in even worse trouble than it is. In the letter, Overstock's former auditors said that the company lied... and lied... and lied... and lied.....

Now, lying by Overstock.com and its wack-a-doo CEO, Patrick Byrne, is no big news. Happens pretty much every time he speaks in public. I mean, it's just one lie after another, from his phony "pro boxing" career (nothing on record to substantiate that) to his naked shorting nuttiness to more substantitve matters, which is how he managed to get Grant Thornton to do sometting that I have never seen in 25 years of writing about crooks.

Accounting firms would rather cut off their pinkies than contradict a client, but they had no choice. Byrne lied in a Form 8-K about stuff that is black and white. Either Grant Thornton did something or it didn't. Byrne says "white." Grant Thornton says "black."

And it's not something minor. We're talking about Overstock lying to cover up its effort to cook the books.

I love this: Overstock filed its 8-K on the lie-disclosure after trading today (suprise surprise)--just before the clock on such things was about to run out, because this letter was written three days ago.

Here's the relevant portion of the Grant Thornton letter:

We disagree with the Company’s statement in paragraph 7 “that upon further consultation and review within the firm, Grant Thornton revised its earlier position” regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error. Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.

We have also read Item 4.02 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner. Further, the Company had additional items which we discussed that were still unresolved at the time we were dismissed, that could have a material impact on the first and second quarter financial statements for 2009. These items are identified by the Company in Paragraph 5 in item 4.01 of the Company’s Form 8-K.

That contradicts not just the 8-K but the conference call too, where Byrne mislead the few people who still believe him into thinking that everything is just fine with Overstock's accounting, and he hasn't been manaipulating the financials to create a "cookie jar reserve," to turn a loss into a profit and to reduce his recent losses.

Floyd Norris of the New York Times is on top of the story, as is white collar crime fighter Sam Antar, whose constant prodding resulted in the SEC investigation that prompted all this.

Nasdaq has given the company sixty days to get its act together (or maybe I should say, get its story straight) or Overstock will be tossed onto the pink sheet ant hill where it really, seriously folks, really belongs. But what, I wonder, will this act-getting together consist of?

Will Byrne be forced to submit to a lie detector test every time he files an SEC disclosure?

Will an SEC official have to stand behind him during his conference calls to be sure he isn't crossing his fingers?

Right now, the company has got to find an accounting firm dumb enough to work for these clowns. As Floyd points out, "The Grant Thornton letter will not increase the number of firms that want Overstock’s business."

Here's something I'm wondering: Byrne has made a lot of dubious statements within the past few days about the supposed approval of his book-cooking by his former accounting firm, Pricewaterhouse Coopers. Has anyone from the SEC bothered to talk to PWC, I wonder? There is, I think, just the teeniest chance that Byrne may have fibbed about that one too.

My hat is off to the guy. Byrne is really a crook for the ages. More and more he is reminding me of Robert Brennan, CEO of First Jersey Securities, the penny stock firm back in the 1970s and 1980s. Brennan waged a public war against the SEC, claiming that he was being picked on because his was a "small firm." Brennan used to boast about how he was really in favor of the "little guy."

I interviewed Brennan when I was at Barron's. The two guys talk alike, make the same kind of arguments, and exude the same kind of greasy dishonesty. It's uncanny.

Brennan wound up in prison. Still there. Oh well, nobody's perfect.

UPDATE: Going Concern: "Grant Thornton, in extremely diplomatic manner, is calling Patrick Byrne and Overstock.com liars."

Now after considering both the humble servant’s story and GT’s letter, our instinct tells us to go with GT. Obviously we’re partial to the servants of the capital markets but the other mitigating factor is, let’s see, Patrick Byrne is off his rocker."

Undiagnosed mental conditions aside, we wish we could give GT more credit for calling BS on a slimy client. Fact of the matter is, they were warned by Sam Antar back in March — when they took OSTK on as a client — that they were in for trouble: "I wish that I can wish you luck with your new client. However, I cannot wish you luck because you apparently ignored the basic “smell test” in evaluating Overstock.com as a potential client."


Henry Blodget at Business Insider: "Overstock's Fired Accounting Firm Says Overstock Is Lying":
Last week, Overstock.com took the bizarre step of firing its accounting firm and filing a quarterly SEC document that had not been reviewed.

According to Overstock CEO Patrick Byrne, Overstock fired its accounting firm, Grant Thornton, for "changing its mind" about whether Overstock had to restate last year's financial performance.

Well, that's a load of bunk, Grant Thornton says, in an even more extraordinary SEC filing.

Grant Thornton also says Overstock is not coming clean about the source of the disagreement, which it says involves Overstock overstating its bottom line in Q1.


Oh, and for comic relief, we have Byrne paying a couple of dudes to write a puff piece for the American Spectator on the Worker Paradise that is Overstock. See first two comments to the article. See this follow-up.

Any other "journalists for sale" who want to want a little Christmas shopping money from the Big O?

Tracy Coenen has a detailed post on the book-cooking.

© 2009 Gary Weiss. All rights reserved.

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