Friday, November 20, 2009

Nasdaq, Please Don't Delist Overstock.com!

At a time when the world seems to be falling apart, it's nice to know that there is a ray of sunshine: the always fascinating story of the corporate crime petri dish, Overstock.com.

I honestly don't know what I'd do without Overstock. What else could I write about that would be so endlessly entertaining? The arrogance, the contempt for law, the lying, the hypocrisy, the bullying, the hubris, the self-righteousness, and above all--I think this is the clincher--the total absence of a sense of irony.

If Overstock were to go bankrupt due to lack of funding or be delisted by Nasdaq (for something silly like having unreliable financial reports and filing an unreviewed 10-Q), life would be less bright.

By the way, look at when the delisting notice was released by Overstock--two minutes after market close today, a day after the letter was received. Friday after market close is the traditional time for dumping bad news by crappy, fraudulent, book-cooking penny stock companies. I doubt they even know that. They just figured, "Gee, this is a good time to dump bad news." There is a freshness in the way these people act, a kind of "We can get away with that, can't we?" attitude that I just adore.

Overstock.com's wack-a-doo CEO Patrick Byrne had a conference call on Wednesday to discuss his latest little, minor, unimportant, unmaterial boo-boos like firing his auditor and filing a bogus financial report... Silly little stuff.

The source of all his troubles, apart from his own incompetence--white collar crime-fighter Sam Antar--was, of course, excluded from this "transparent" conference call, which Byrne arrogantly boasted about on his "Deep Capture" smear site (which is devoted to investigating "bad people" who all happen to be critical of this bozo).

But even without Sam asking pertinent questions, Byrne and his minions provided quite a show. Below is a message board post that I think sums up the conference call fairly. I've put the commentary in italics:
Has everybody had a chance by now to look over the transcript of the Chuckles the Clown conference call held on 11/18? All of Overstock's conference calls are truly in a class by themselves.

[CFO Steven] Chestnut: "...people will sense the complexity of the question too, because this is not a pretty simple right/wrong; there's a lot of facts and information that, hopefully, we'll disclose through this conference call that will be helpful."

[President Jonathan] Johnson: "....yes, I agree -- this is arcane -- how many accounting angels can dance on the headof a pin?"

Complexity; arcane? We're talking about whether to recognize revenue in the quarter it was earned. There's nothing "complex" or "arcane" about Overstock's books except the constant attempt to cook them.

"Dr." Byrne: "Can I put this on my balance sheet, because I know I'm going to -- I found $100 somebody owes me, can I put $100 on my balance sheet and run that through my income statement?"

Yeah. It's called accounts receivable! If you're not sure you'll collect all of it, you establish a reserve. Arcane, huh?

Chestnut: "...remember, Patrick, fourth quarter 2008 was a retail Armageddon. And so all of this was put in the context of a pretty uncertain fourth quarter and where is the environment going to go?"

So: The environment being less than rosy (or possibly, resembling the final batle between good and evil), one doesn't post earnings properly, just to be "conservative"?

Byrne: "Now, the SEC, at least in their questions, seemed to be saying, well, isn't it true that anything -- and I'm not dissing the SEC. I am dissing [is people on the scene] {can't account for the previous meaningless "is people on the scene" "correction" in the original transcript}-- I mean, I think Grant Thornton -- we're not going to be exchanging Christmas cards."

Why didn't you finish that thought about the S. E. C.? We don't care who's on your Christmas card list. (And, by the way, you certainly are "dissing"--if you can't find a better term--the S. E. C.)

Byrne: "The SEC is just doing its job ...God bless them, that's their right'

Nice of you to acknowledge that!

Johnson: "Let's just take a look at what the fog of war was like then."

The fog of war?
Ah, then, all is forgiven. People do lose their heads during a bayonet charge, and of course the whole world always looks like a bayonet charge to "Dr. Byrne".

Byrne: "...what did the balance sheet in God's eye look like as of December 31...?"

Ah, I am checkmated again. Invoking the deity, whose knowledge you presume to have duplicated, will always win an argument.

"We had a choice -- you know, this isn't some mistake that slipped under everyone's radar. There was a choice...."

That doesn't square very well with "Antar's ramblings are gibberish. Show them to any accountant and they will confirm. He has no clue....It's just a guy on a street corner, spouting gibberish, hoping someone will toss him a quarter," which statement [by Byrne in a Feb. 6 message board post] I presume now apples to the S. E. C.


It just goes on and on like that. . . .
UPDATE: White-collar crime aficionados will enjoy this blog post, in which Antar single-handedly dismantles the bozo's accounting gimmicks. He describes how the company manipulated its financials to beat analyst estimates, turn a fourth-quarter loss into a profit, and push up the stock price.

In twenty-five years of reporting on the markets I've never seen a more blatant case of cooking the books.

Sam observes:
Another unanswered question is how could Overstock.com, without any hint as it claims, entirely miss such a large magnitude of underbillings to fulfillment partners ($2.8 million in 2007 and $2.7 million from Q1 to Q3 2008) and the overpayments to a fulfillment partner ($785,000 in the same period) with a combined total of $6.285 million in just 21 months? Add to that total another $301,000 of overbilling from a freight carrier in Q4 2008 and you have $6.586 million in money going out the door within a 24 month period without anyone claiming to notice it. Yet during the entire period, CEO Patrick Byrne and former CFO David Chidester signed Sarbanes-Oxley certifications attesting to adequate internal controls and PricewaterhouseCoopers issued clean audit opinions. Why aren't heads rolling at the company, starting from the audit committee, the CEO, and the CFO?
Good point. These are significant sums of money for a company of this size, sufficient to make a sizable difference in the share price and market cap.

Guess they figured nobody would notice.

© 2009 Gary Weiss. All rights reserved.

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