Under Siege, Patrick Byrne Celebrates Black Friday at Little Big Horn
Fighting to the death for the right to cook the books
Today is the biggest retailing day of the year, Black Friday, and my favorite Internet retailer, Overstock.com's increasingly beleaguered, SEC-investigated, auditor-denouncing and, above all, incurably wacky CEO Patrick Byrne, is celebrating the day at Overstock's new headquarters: Little Big Horn.
The poor man (I mean that in the non-material sense) has found himself under siege--and facing delisting from Nasdaq--since he fired his auditors, Grant Thornton, for daring to disagree with him on his book-cooking scheme. Who do they think they are, anyway? He paid them good money to do what he says, just like everybody says.
Don't forget, this is a CEO who installed a non-CPA as chief financial officer, and whose board of directors marched off the pages of a Sinclair Lewis novel. The man is not used to being contradicted. Besides, Byrne knows everything there is to know about accounting. Doesn't he balance his checkbook after each trust fund check comes in from his billionaire daddy?
Late Tuesday night, Byrne launched a vicious attack on his hapless former auditors, accusing them of lying when it accused him of lying in recent statements. As white collar crime-fighter Sam Antar points out in a post this morning, Byrne is trying to obscure the main issue, which is that independent auditors have a duty to do the right thing. That's, uh, why they're called "independent" auditors.
Byrne, meanwhile, has found the arrows landing to the right and left of him.
What really matters is that during the course of assisting Overstock.com in answering questions from the SEC Division of Corporation Finance, Grant Thornton came upon additional information that appropriately led them to recommend the restatement of 2009 financial reports, which in turn meant the restatement of 2008 reports (See SAS 1 AU 560 and AU 561).
Even if Grant Thornton previously knew about the 2008 overpayment to a fulfillment partner and the reporting of the 2009 recovery of that overpayment as income in 2009 and they are allowed to change their minds. Grant Thornton responsibly and appropriately recommended to Overstock.com that the company must restate its financial reports after obtaining new information during the course of the SEC Division of Corporation Finance probe of the company's financial disclosures. Grant Thornton valiantly did not give into pressure from its client Overstock.com and should be commended for not backing down from Byrne's bullying.
The Financial Times blasted him in a column (subscription required) on Tuesday:
Patrick Byrne cannot blame this one on the Sith Lord. Unless a Jedi mind trick was involved, the chief executive of online retailer Overstock.com has some explaining to do about why his company fired its second auditor in nine months and took the unusual step of filing unreviewed quarterly financials.Other salvos are coming at this poor, sick dude from all over, from forensic accountant Tracy Coenen to other respected accounting blogs (see this and this--"Overstock's Nut-Bag CEO") to Floyd Norris.
He is no stranger to controversy, having waged a campaign against hedge funds and brokers who he says are involved in a “naked short selling” campaign against companies such as his. The weirdness of his message and his attacks on respected journalists who dared to disagree have not helped his cause. . .
. . .shareholders’ patience is wearing thin. After a decade in business, Overstock has never turned an annual profit and its shares have slumped 80 per cent over five years compared with a 230 per cent gain for larger rival Amazon.com. Neither sci-fi villains nor short-sellers, whether naked or clothed, can be blamed for the poor performance. Mr Byrne needs to turn his energy and considerable creativity towards his company’s bottom line and not some phantom menace.
Byrne, bravely counterattacking, hauled out his checkbook and paid some sap to write a puff piece extolling his "workers paradise" in the wingnut journal The American Spectator, my item on which was picked up by Columbia Journalism Review's Audit column.
Floyd's latest blog item says:
I have no idea if Byrne would succumb to something as proletarian as the SEC, as long as he has a bank account and lawyers on retainer. Personally I think the only power on earth that can change his mind is whoever has control over his trust fund. It doesn't appear to be daddy, GEICO's ex-CEO John Byrne, or he wouldn't have implied once that he was going senile.
Now what? My best forecast is that Overstock.com will eventually make some changes to its accounting. In doing so, it may denounce the S.E.C.
Then the company will look for a new auditor. I can hardly wait to see who is willing to take on this assignment.
Here's what I'd like to know: how can Nasdaq keep in its listings a company that has never abided by GAAP, whose financial statements are completely unreliable, and which openly engages in auditor-shopping?
UPDATE: Good comments from Jeff Matthews and Francine McKenna below.
© 2009 Gary Weiss. All rights reserved.