Monday, November 30, 2009

Goodbye McGraw-Hill, Hello Bloomberg


The BusinessWeek staff enters a New World, its corridors paved with gold

Today is the last day BusinessWeek will be within the corporate grasp of "Mother McGraw," as McGraw-Hill is known to its older employees. At midnight, eighty years of M-H control comes to an end, and the magazine becomes part of Bloomberg L.P., the staff intact except for 123 employees who were graciously "included in the restructuring program."

Given the amount of attention this change in ownership received, at least for a time, it's striking how little is known about what will happen to BusinessWeek after Bloomberg takes control. It's not even clear if it have an appreciable staff of its own, and staffers I know who were retained were brought into the wire, not the magazine. Only the highest editors--ironically, those with the greatest responsibility for its fate--were brought into the magazine proper (for the time being). All except the editor in chief, who was on the list of 123.

I'm sure that Terry McGraw, the CEO of the company, must feel terrible about having to get rid of the company's flagship publication. But business is business, and shareholder prerogatives must be protected (and this is a good example of why public ownership is incompatible with journalism).

I've never understood why Terry let the magazine go into such a decline. Did he really think hiring a wine critic would put BW back on its feet? Did he really think that patronizing attempts to curry favor with readers would keep advertisers from fleeing? Did he really think that expanding its ranks of high-level editors, at the same time that writers and line editors were being cut, was the right thing to do?

But that's all history now. The story of the decline, fall and possible rescue of BW will be a good journalism review story, one of these days.

© 2009 Gary Weiss. All rights reserved.

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"Economic Expert" Patrick Byrne Dumped by CNN

I eagerly tuned in to CNN's State of the Union broadcast yesterday, where Overstock.com's wacky CEO, Patrick Byrne, was scheduled to be a guest. According to the advance billing, he was scheduled to "survey the nation's economy."

Hey, who better to survey the nation's economy than a CEO who has never made a nickel in profits for his company, and is facing delisting by Nasdaq because his auditors quit over his efforts to cook the books? He is now in a public battle with his ex-auditors, which has resulted in far more than the usual derision.

Seriously, though, CNN's bookers had no choice. What other CEO of any retail outlet bigger than a pushcart would be available during the busiest retailing weekend of the year? Byrne was scheduled to appear from studios in San Francisco, not Salt Lake City, where the corporate headquarters is located.

Here he was, while his company teetered on ruin, either flying into San Francisco for the chance to get his puss on national TV, or living it up on Telegraph Hill or wherever, far from his beleaguered and SEC-investigated company.

So guess what? He was a no-show. I hear, from someone in a position to know, that Byrne was late, so his appearance was canceled. Maybe the plane was late, or he got held up at a bar, or whatever.

Hey, they don't call him "America's worst CEO" for nothing. But he is endlessly entertaining, so please, Nasdaq, don't delist him. CNN, you've got his number. Call.

© 2009 Gary Weiss. All rights reserved.

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Friday, November 27, 2009

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.

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.

Byrne, meanwhile, has found the arrows landing to the right and left of him.

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.

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.
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.

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:

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.

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.

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.

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Tuesday, November 24, 2009

Today's Memo


To be "eligible" you have to be fired. Get it?

I guess there's no easy way to do a layoff, and the people laid off in the BusinessWeek-Bloomberg marriage--123 of them, to be exact--have been treated with as much dignity as the situation allows.

I know that there were exactly 123 people laid off, because that's the number that was disclosed in a memo distributed to them from somebody in the labyrinthine McGraw-Hill bureaucracy. (So a Bloomberg spokesperson was correct in saying that the total number fired was not 130, as initially reported.)

One of the affected people was kind enough to give me a look at the memo, which is a list of the titles of the people laid off, along with their ages, and a list of the people kept, with their ages. No names on either list. I'm not sure why this memo was sent out to these people. Some federal law requirement, I've heard.

What struck me were not the lists themselves, with their Schindler-like quality, but the language that was used to describe the people who survived and didn't (pardon the expression) survive the selection.

The memo begins, "The positions selected for termination were those who did not receive an offer of a comparable or substitute job with Bloomberg L.P., Geller & Company LLC, or The McGraw-Hill Companies, Inc."

OK, that's straightforward enough. But then come the lists.

List B, showing the people fired, is entitled, "Individuals selected for inclusion in the restructuring program."

List C, listing the people kept on, is entitled, "Individuals ineligible or not selected for inclusion in the restructuring program."

"Ineligible or not selected." Poor bastards.

Seriously, couldn't they have put more thought into the way these lists were described? I mean, this is a communications company and all that.

© 2009 Gary Weiss. All rights reserved.

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Today's Overstock.com Moment: Payola Journalism

The SEC-investigated, book-cooking Overstock.com, as it awaits a decision by Nasdaq as to whether it should be delisted for its various naughtiness, continues to provide merriment for children of all ages.

Today's "Overstock moment" comes in the form of an article published in The American Spectator by F. Vincent Vernuccio and Jeremy Lott. It extols the "worker's paradise" that is Overstock. I mean really extols. But hey, bad journalism about Overstock is nothing new, and "CEO porn" is one of the afflictions of our business.

The timing of the article was not great, given that the company has just been accused of lying by its former auditor, but I guess them's the breaks.

What makes this particular puff distinctive, however, is that Overstock paid for it. That isn't disclosed in the article proper (except for "on its dime", which flits by you if you blink) but emerged in the comments section, in this exchange:
Denver Todd| 11.24.09 @ 8:46AM

I am a bit jaded about things like this. I remember the tech boom in Seattle where lived at the time, when good companies allowed workers to bring their dogs to work. It is nice to know there are positive working environments out there, even if THE COMPANY PAID THE AUTHORS TO WRITE THIS ARTICLE.
Response:
Jeremy Lott| 11.24.09 @ 9:43AM

Overstock paid for our travel and such. It didn't fatten our bank accounts.
The other day I pointed out that one of the things that appeals to me is Overstock's total lack of irony. CEO Patrick Byrne personally attacks critics (including moi), calling them "crooks" and "goniffs" (when they are Jewish), when they are women they are whores (he accused Bethany McLean of giving "blowjobs to Goldman Sachs traders").

He has three lowlifes on his payroll at a website called "Deep Capture" to write about "captured journalists" like me and Floyd Norris and Joe Nocera and McLean and Roddy Boyd and Herb Greenberg (and pretty much anyone who has written a non-puff piece about Overstock) accusing us of being "captured" by nefarious forces paying us major moolah to criticize him.

Seriously. He is such a narcissist that he believes that it takes bribery to force unwilling journos to criticize this prince among the nations.

A flavor of the recent non-paid coverage can be found in the illustration (right) from AccountingNation.com, from an article entitled "Overstock's Nut-Bag CEO."

I assume his goons are cranking up blog posts claiming that AccountingNation and Going Concern were bribed for their recent coverage, as were Business Insider, Floyd Norris and of course, Grant Thornton, which just told the SEC that Overstock has lied in a recent 8-K filing. All tools of the Sith Lord.

And here he is, engaging in the bottom-feeder practice of paying a journalist, openly, to write a puff piece about him.

As I said yesterday, Byrne is one of a kind. He is a crook for the ages.

© 2009 Gary Weiss. All rights reserved.

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Bring Back Eliot Spitzer!

I must say that I rather enjoyed writing this column for Portfolio.com.

Yes, Portfolio.com, and with the same name as my late, lamented blog, the Weiss File. Boy gets blog, boy loses blog (and magazine gig), boy gets column. Hollywood formula.

Portfolio.com is run by the good folks at American City Business Journals, a unit of Conde Nast, publisher of the late, lamented Portfolio magazine.

© 2009 Gary Weiss. All rights reserved.

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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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A Peek at the New BusinessWeek

Somebody sent me a Bloomberg story that ran today on Andrew Cuomo, New York's attorney general and a rising star in the Democratic party, describing how Cuomo took cash from lawyers with business before his office.

It's a great piece, and it occurred to me that this kind of story is an example of why Bloomberg need BusinessWeek--and what the magazine is going to look like under its new owners.

The magazine has reportedly jettisoned over 130 people (the exact number is disputed by Bloomberg), and some of the most prominent writers--including all of its columnists--are being let go, including, startlingly, longtime economics writer Mike Mandel.

How could Bloomberg get rid of such prominent, well-known journalists? The reason, I think, is that Bloomberg doesn't want prominent, well-known journalists writing for the magazine. It wants to clear the decks for BW to become a showcase for its preexisting talent, such as the writers of the Cuomo story. Unless they're picked up by the New York Times or Wall Street Journal, stories like that don't get much mileage. That will change when BW comes under Bloomberg's wing.

Now, I could be dead wrong about this -- and we won't know for sure until the mgazine has appeared for a while under its new owners--but my sense is that BW's existing writers are going to play second fiddle to that urgent corporate need.

That would explain why BW editors are staying with the magazine, while writers (such as my old colleagues covering finance) are apparently mainly going to the wire, if they are kept at all.

So I guess that the bottom line of the Bloomberg acquisition is that Bloomberg will be a far better steward of BW than any of the other buyers would have been. But for the existing staff, particularly if they were writers, it's going to be one hell of an adjustment.

© 2009 Gary Weiss. All rights reserved.

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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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David Brooks Misses the Point

David Brooks' New York Times op-ed column today on Tim Geithner (mentioning in the lead my Portfolio cover story) misses the point, I think.

The problem with Geithner's approach is not whether or not the banks are recovering because of the TARP program, but the degree to which the profits of the biggest banks have not been matched by a commensurate ability to lend.

Money is still tight. A couple of weeks ago, the Federal Reserve reported that banks "kept tightening lending standards for companies and consumers last quarter, reinforcing the central bank’s decision to leave its benchmark interest rates at record lows for a long time."

Simply put, the absence of a continued bank-caused financial crisis is not a reason to cheer. The public is justifiably upset that all those billions of dollars have made bankers richer without showing any benefits in terms of loosened lending policies. That's not an unreasonable expectation, and enough time has passed that people have a right to ask: what's in it for me? Why have we not seen any benefits to the population as a whole (apart from the banking system not falling apart) from the TARP program?

I don't believe that history will be kind to Geithner, or President Obama, if all he can show for his efforts, and our billions, is the absence of a crisis.

© 2009 Gary Weiss. All rights reserved.

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The New BusinessWeek Will Look Like.....?

The layoffs taking place at BusinessWeek, as it gears up to melt into Bloomberg, are much larger than had been anticipated--a third of the staff--and raise some interesting questions about what the magazine is going to look like, and how it will be staffed.

It's not even clear to what extent the new BW will have its own writing staff. Higher-level editors are being retained for the magazine, but so far I haven't heard of any BW writers being retained to work exclusively for the magazine. This is crucial to the magazine's identity, if one cares about such things.

I've heard from multiple sources that the new BW will use the Bloomberg wire's staff to cover Wall Street and finance, and that the people in my old department who have been retained will be going to the wire, not the magazine. Stock market columnist Gene Marcial is being let go, along with the rest of the magazine's columnists. He had a substantial following, surviving previous layoffs that had already gutted the staff, but he's history.

The impression I get is that BW people are a bit in a state of shock over the extent to which the staff is being gutted. Can't say I blame them. But it was obvious from the moment BW was put up for sale that this outcome was always in the cards. The fault, dear Brutus, is not in their stars, but in Terry McGraw.

UPDATE: Bloomberg denies the 130-fired figure. The number dismissed is important because the federal WARN act kicks in if at least 33% of a work force is laid off. 130/400 would be under that number.

Some of the media accounts have talked about BW people "staying with the magazine." I know that at least one of those reports is incorrect, and I have my doubts about the extent to which the new BW will have a dedicated writing staff. It's possible. But Bloomberg has a large staff of experienced writers, some of whom had worked for the Wall Street Journal, Portfolio and, of course, BW itself. It would be logical for them to contribute to the new Bloomberg-BW.

© 2009 Gary Weiss. All rights reserved.

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Thursday, November 19, 2009

Should a Banned Broker Become a Journalist?

I was being bombarded with word of the ongoing BusinessWeek slaughter, when I heard of the squabble between Felix Salmon and Henry Blodget.

The question is whether it's kosher that Blodget (and other banned securities industry people) should take away jobs from out of work journalists--like the ones being tossed out onto Avenue of the Americas today.

Blodget isn't actually the main focus of Salmon's piece, but he got riled and responded, so thus it became a squabble.

I guess my feeling is that it's OK, as long as it's disclosed. Blodget's troubles with regulators are well known. If people don't know this guy's past, they're too out-to-lunch to read Business Insider.

I'm a great believer in redemption. Personally I feel that Eliot Spitzer, even though not exactly redeemed, belongs at least in journalism, and perhaps back in a position of responsiblity.

Certainly one of the best sources of information on my Marley, Overstock.com, is the admitted crook Sam Antar. Of course, Sam is functioning as an unpaid blogger, not a journalist taking the bread out of the mouths of other journalists.

Let's face it, journalists are losing their jobs not because there are too many banned brokers in our ranks, but because our industry has lost its way.

Right now, as I write these immortal words, people are being canned right and left from BW. Apparently the entire staff is being dispersed and cut to ribbons. Why? Because the magazine was driven into the ground by mismanagement, and McGraw-Hill, having used BW as a cash cow for decades, felt that it was better to cut the magazine loose rather than have faith in its future.

Journalism is a tough, cold, shrinking business, and a few people with shady pasts in our midst is the least of our worries.

© 2009 Gary Weiss. All rights reserved.

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Layoffs Commence at BusinessWeek

Layoffs have begun as Bloomberg begins to absorb BusinessWeek, and the list of people leaving is growing ever-longer with, it seems, every passing minute.

Chris Roush is keeping a running total. Among the people leaving, at last look, are Steve Baker, Steve Wildstrom, Jon Fine, and Lauren Young. Baker is the author of a well-received book, The Numerati, Wildstrom wrote a technology column, Fine covered media and Young was a personal business editor. I'm surprised by these departures, and by others I've heard about in confidence.

Here's what's interesting: so far I haven't heard of anyone under the rank of assistant managing editor who is being retained by the magazine. All the retained people who are writers or line editors are going to the wire.

What I'll be curious to see is to what extent the new BW has its own substantial staff of writers, or whether it will draw primarily on contributions from upon the staff of the Bloomberg wire.

The former had been expected. The latter would be something of a surprise.

One saving grace, albeit a tiny one: I hear that people are being given the bad news with dignity and respect. That's better than what happened a few years ago, when one longtime BW editor I know, who retired and stayed on part-time, was let go via email. Classy.

© 2009 Gary Weiss. All rights reserved.

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A New Insight on the Wall Street Mob Hit

Jerry Capeci has an interesting column today (subscription only) on the unsolved 1999 slaying of two Mob-linked stock promoters, Alan Chalem and Maier Lehmann.

In a BusinessWeek article at the time, I pointed out that Chalem had business dealings with DeCavalcante crime family capo Phil Abramo, now imprisoned, who controlled Toluca Pacific Securities and another penny stock house called A.S. Goldmen.

Capeci reports:
The so-called real Sopranos’ main man on Wall Street, capo Philip Abramo, (left) had controlled Toluca Pacific, and soldier Anthony Capo was quickly fingered as one of the gunmen.

Capo, however, squelched that theory after he was indicted on racketeering and murder charges, and began cooperating that December with federal prosecutors in Manhattan. Capo admitted several mob killings, but insisted he had nothing to do with the Colts Neck murders.
At that point, he said, investigators began probing the Russian mob:
For several years, federal prosecutors in Newark, working with state police, the FBI and SEC, used a federal grand jury investigation in an effort to get to the bottom of the double homicide. Despite several leads that pointed in that direction, including a cooperating witness who told the feds he had seen several gun-toting Russian gangsters in Chalem’s house, that also turned out to be a dead end.

Now, here's where it gets interesting. Capeci says that the slayings are now believed to be linked to Alphonse "Allie" Persico of the Columbo crime family, who's now serving life in prison. Persico had business dealings with Chalem, and there is still a link with Toluca Pacific:
[Persico family member] Sean Persico. . . and Chalem were also “silent partners” in a classic “pump and dump stock scheme” that the men allegedly operated out of Toluca Pacific Securities, one of two shady brokerages that Chalem worked for during the late 1990s.

Neither man was ever charged, but authorities and other sources say that Sean Persico used a crew of corrupt brokers he controlled to “pump up” the prices of stocks that Chalem gave him. The crooked brokers touted the stocks to unsuspecting investors who would buy them and end up with worthless paper when Chalem would “dump” his own holdings at artificially high prices.
A person who knows these kinds of things tells me that Abramo would have had to approve the killing even if it was carried out by the Columbo family. After all, Chalem was his money-maker. One doesn't kill one's milch cows if one can avoid doing so.

I've never really understood why these guys were killed. The mob people involved in Wall Street at the time, even the Russian mob guys (who were fifty times as violent as their Mafia brethren) did not leave a trail of bodies behind them. It doesn't seem likely they'd have been killed unless there was either a massive ripoff or it was believed that one or both of them was about become an informant.

Complicating the investigation is that Lehmann may be a red herring. Capeci says that state and federal authorities believe that Chalem was the target, and that Lehmann might just have been in the wrong place at the wrong time.

This is shaping up to be just another of the thousands of mob killings over the years that have never been solved, and never will be.

© 2009 Gary Weiss. All rights reserved.

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Wednesday, November 18, 2009

Goldman's PR Offensive: What's in it for Them?

Once upon a time I called Goldman Sachs to see if I could get cooperation for a story I was working on. Goldman was not the subject of the story, but played a role. The spokesperson's response was enjoyably candid: "What's in it for us?" The answer was no.

These people are sweethearts and always have been. It surprised me that Matt Taibbi's "vampire fish" article, flawed as it was, received such an unfavorable reception from the financial press, given the storied arrogance of this company.

Today I read about the Goldman Sachs "$500 million and an apology" p.r. offensive with that question in mind. What's in it for them?

Obviously nobody over the age of seven is going to believe that there is any sincerity affixed to the aforementioned apology. And that $500 million is as crass a p.r. maneuver as one can find.

So why engage in an insincere p.r. maneuver and give an "apology" that is absolutely meaningless--particularly since CEO Lloyd Blankfein didn't specify what exactly he was apologizing for?

I'm honestly flummoxed. It won't placate anybody. It won't satisfy anybody. And as for those "small business owners" that $500 million is going to benefit: does anyone truly believe that Goldman gives half a hoot about them?

A page one story in the New York Times, perhaps, so as to divert attention from this kind of thing?

Won't work
.

It was, in short, a waste of money. But Goldman can afford it.

© 2009 Gary Weiss. All rights reserved.

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Tuesday, November 17, 2009

They Don't Call it 'Jonestown' For Nothing


Privacy? Never heard of it.

The Internet nickname for the Investor Village message board is "Investors Jonestown" because of its singleminded fealty to corporate management--enforced by kicking off corporate critics, as they did with Sam Antar, whose investigation of Overstock.com's accounting was vindicated by reopening of an SEC investigation.

With most critics of the company kicked off, it's little wonder that the IV board has had a grand total of one post on Overstock.com's recent firing of its auditors and late filing of its 10-Q. Hell, even in the real Jonestown there were more than one who wouldn't drink the kool-aid.

IV may be even kookier than I thought. One IV member claims that IV's owner, in violation of every privacy precept in creation, actually knew his account password, chastising him for it because it was critical of Overstock CEO Patrick Byrne. ("Blue" in the message duplicated above is Ralph "Blue" Kidd, the "CEO" of this message board, which he runs out of his house in a working-class suburb of New Orleans.)

I find this account a bit hard to believe because (as the person who replied to him pointed out) ordinarily passwords are not available to board managers.

True, but this is a message board whose business model is based on censorship and kowtowing to corporate managers. I wouldn't put anything past those guys.

© 2009 Gary Weiss. All rights reserved.

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Don't Worry, Folks: Frank DiPascali is Still in Jail

In the past I've decried the behavior of U.S. District Court Judge Richard J. Sullivan, who has pandered to public sentiment by refusing to release on bail the chief cooperating witness in the Bernie Madoff case, Frank DiPascali Jr.

Doing so, I've pointed out, makes the job of cracking white collar cases harder, not just in the Madoff cases but in future cases. Hey, that's how our system works. It depends on rats.

Today, Sullivan issued a simply amazing order, reproduced below, reaffirming that yes, Frank DiPascali is still in jail.

The order was prompted by an email by some guy who wrote the judge, thinking (wrongly) that Sullivan had shown some sense. No sir! Not this judge.

Now, I'm not a lawyer, but this is one of the oddest court filings I've ever seen.




© 2009 Gary Weiss. All rights reserved.

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A New Editor, and Layoffs, Coming to BusinessWeek

The process of watching the BusinessWeek-Bloomberg integration is starting to get discomfiting (not that it was ever especially pleasant) for BW alumni like myself.

The good news is that BW has a new editor-in-chief with an intriguing resume: Josh Tyrangiel, a deputy m.e. at Time magazine and head of its online operations.

The bad news comes in the form of a memo leaked to Gawker, quoting Norm Pearlstine hinting pretty strongly at layoffs.

For a while I had thought that there might be a "Sully Sullenberger" situation--a landing without casualties. Ain't happening.

UPDATE: Looks more like TWA Flight 800 than a soft splashdown in the Hudson. The Wall Street Journal says a 25% staff cut is expected, with 100 staffers thrown out on the street.

© 2009 Gary Weiss. All rights reserved.

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Monday, November 16, 2009

Look Out Below! Overstock.com Jumps Off a Cliff


Not to worry, the CEO has plenty of lies if you don't believe his latest ones

People sometimes ask me about my fascination with Overstock.com. I've compared it to Marley, very much in jest of course. (Comparing such a nice dog to such awful people!) The serious answer is that this company is about as close to street criminals as you can find in corporate America--openly cooking its books, openly stalking its critics.

Now, very much in the open, the company has jumped off a cliff, proverbially speaking. This afternoon, the company belatedly announced that it fired its auditors on Friday, and today it filed an unaudited un-vouched-for, late Form 10-Q in violation of a host of SEC regulations.

So now Overstock is not current with its filings, which means that its access to the capital markets is essentially crippled. Which means bankruptcy, unless Byrne can figure out some other source of cash (his trust fund?) Profits, except those obtained through numbers-juggling, are not in the cards.

Bad companies are often not current what their filings. What is amazing is that Overstock went ahead and filed its 10-Q without an auditor reviewing it. Even the most sleazebucket penny stock outfits, even Bernie Madoff, manage to get some accountant somewhere to review their filings before sending them in to the SEC. I have never heard of even the most irresponsible company filing an unreviewed financial statement.

To top off all this, Overstock issued a press release by its wacky CEO, Patrick Byrne, replete with an unctuous quote from Nietzsche, that is so totally full of crap that I doubt that even the most brain-dead regulator will fail to take note.

The letter says:
In February 2009, we were notified by a partner that we had overpaid it approximately $700,000, but that the partner wanted to reach a mutual solution to this overpayment and another open issue (the partner has asserted that we might owe it in excess of $400,000 regarding this other issue). At that time, we doubted our ability to recover this overpayment and we could not reasonably estimate what we might recover.
This statement, if true, presupposes that Overstock's management is so completely FUBAR, its accounting controls so screwed up, that it managed to overpay somebody by a sum that is substantial for a company of this size and unprofitability. No company is that inept, not even this one. There are a number of reasons why a company would overpay but... well, let's not get into that right now.

But even if you swallow this obvious hoo-ha, it's plain that Byrne is covering up for the "cookie jar reserve" that has been described in detail in the past by white collar crime expert Sam Antar.

The rest of the letter spins the fact that its auditors at Grant Thornton disagree with the way the above "overpayment" was handled. So it was, naturally, fired. But previous auditors at PriceWaterhouse Coopers, no longer in the company's employ, agree.

So, PWC is coming back on board... right? I'm sure that PWC, or any other reputable accounting firm, would be only too happy to work for such upstanding people.

There will be another conference call, on Wednesday, to give Byrne yet another opportunity to duck questions from Sam Antar, spin and lie.

Here's one question somebody might want to ask: who got fired for the "overpayment"? The answer, I'm sure, is that it's all a personnel matter... or the accountants are good Mormons..... or maybe that it wasn't an accidental, ohmygosh-type overpayment after all but something else....

Oh my, I am so suspicious! Shame on me.

Obviously Byrne is expecting the SEC to get off its duff and, this time, end its ongoing investigation with action. Under "risk factors," the company disclosed as follows:

Public statements we or our chief executive officer, Patrick M. Byrne, have made or may make in the future may antagonize regulatory officials or others.


We and our chief executive officer, Patrick M. Byrne, have from time to time made public statements regarding our or his beliefs about matters of public interest, including statements regarding naked short selling. Some of those public statements have been critical of the Securities and Exchange Commission and other regulatory agencies. These public statements may have consequences for us, whether as a result of increased regulatory scrutiny or otherwise.

I can't find a better explanation for Byrne's anti-shorting jihad: to give him a handy excuse if his mismanagement of the company were to ever result in regulatory sanctions.

Again, "mismanagement" is the kindest possible explanation one can find for an "overpayment" of that magnitude. Something tells me that we may wind up in a situation in which a "cookie jar reserve" is the kindest thing you can say about this company's accounting.

Well, as they say, to be continued. . .

UPDATE: Sam Antar has an analysis, calling this a "real dumb move," and Henry Blodget expresses amazement. Blogger Chris Faille compares Overstock to Refco. and William Wolfrum weighs in. So does Floyd Norris, who evidently enjoys Byrne almost as much as I do.

"Dumb" is an understatement. "Suicidal" is more like it. Overstock now can be delisted by Nasdaq, which has a strict auditor requirement, and its stock trading halted by the SEC. Byrne can keep that from happening by finding an accounting firm stupid enough to work for him, but here's something that's guaranteed: since the company is no longer current in its filings, it can't issue stock to raise cash for the next twelve months. That is acknowledged in the 10Q, on page 3:

Filing an amendment to this report, when the independent registered public accountants’ review is complete, would eliminate certain consequences of a deficient filing, but the Company may become ineligible to use Form S-3 to register securities until all required reports under the Securities Exchange Act of 1934 have been timely filed for the 12 months prior to the filing of the registration statement for those securities.
With more money going out than coming in, and no access to borrowing or stock issuing... oh my.

Look out below!

Later, Byrne was quoted in the Salt Lake Tribune as telling the SEC to go to hell, though apparently his medication set in and he withdrew the remark:
"We refuse to knuckle under the SEC's and Grant Thornton's insistence that we abandon generally accepted accounting principles," Byrne said Tuesday, later softening the statement to include only Grant Thornton, saying the Securities and Exchange Commission has a right to look into the company's financials. "Hopefully in the next six weeks, we'll get this cleared up with the SEC."
What's going to happen in the next six week? Does the expect the SEC to revoke the securities laws? This guy is beginning to remind me of Bob Brennan, the head of the First Jersey Securities penny stock house, who took a similarly defiant stance toward the SEC--and wound up in prison.

© 2009 Gary Weiss. All rights reserved.

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Saturday, November 14, 2009

Asleep in Connecticut

My very first job was at the Hartford Courant's Groton-New London bureau, so I had a very personal interest in the front page New York Times story the other day on how New London was royally screwed by Pfizer--pulling out of a redevelopment project after the city fought up to the Supreme Court, in Kelo vs. New London, to fight for the right to take property for private purposes.

But according to Columbia Journalism Review's Audit column, the local newspapers in Connecticut missed the boat, with both the The Day of New London and the Hartford Courant giving short shrift to the Kelo angle.

The Courant's local bureau was shuttered many years ago for obvious economic reasons. We had very few readers in southeastern Connecticut. But that part of the state generated numerous state-wide stories because of its massive military-industrial complex, which included (and still includes) a big Pfizer plant in Groton.

I can't see the old, stodgy Courant de-emphasizing the national implications of such a story. But the belated response of The Day is even more shocking, because that's long been one of the best small papers in the country. The reaction of the Times was the most comprehensive, but even its take on the story was several days late.

As the Audit points out, blogs and websites got there first. This has been a sad week in Connecticut journalism.

© 2009 Gary Weiss. All rights reserved.

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Thursday, November 12, 2009

One Benefit of Bloomberg's BW Purchase: Goodbye Maria Bartiromo

One of the many cockamamie decisions of the former BusinessWeek editor-in-chief, the soon-departing Steve Adler, was to hand over precious editorial space to fluff, ranging from a wine column to "Face Time" puff pieces by CNBC's Maria Bartiromo.

The column is gone, according to BW's Monica Roman Gagnier's Twitter feed:
Norm Pearlstine tells BW staffers Maria Bartiromo's FaceTime column is being killed in BusinessWeek, after the Bloomberg acquisition closes
Reminds me of what somebody said about the departure of Lou Dobbs from CNN: an "improvement by subtraction."

© 2009 Gary Weiss. All rights reserved.

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Study: Bear Stearns and Lehman Brothers Not 'Destroyed' by Naked Short Selling

Readers of this blog may find this article in the Big Money of interest, particularly the last part, in which I cite an academic study that debunks the theory that Bear Stearns and Lehman Brothers were brought down by naked shorting.

The study was based on "fails to deliver" data, which naked shorting conspiracy theorists have been using as a proxy for naked shorting.

I think that fails are a questionable way of plotting naked shorting, but even if you use it as a proxy for NSS, as the NSS conspiracy theorists do, the numbers show very clearly that such trading did not cause the decline in share prices for Bear and Lehman. The fails took place after both companies tanked.

Matt Taibbi based his entire recent, wretched Rolling Stone article on that same premise, which turns out to be false. No surprise, as most of his named sources were related to Overstock.com's wack-a-doo CEO Patrick Byrne, or were otherwise old veterans of the NSS conspiracy circuit. Among them were someone from the Haverford Group, which he didn't mention is a Byrne-owned company, and ex-Overstock lawyer Brent Baker, without his mentioning that his client list includes two of the most wretched companies to use NSS as an excuse, Universal Express and the recently-indicted CMKM Diamonds.

You'd think that Taibbi could have at least discovered that Byrne owned Haverford. Isn't that hard, for chrissakes.

Looks like Taibbi was really conned--again.

© 2009 Gary Weiss. All rights reserved.

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Eureka! The SEC Enforced Regulation G!


Will wonders never cease?

This isn't likely to get much notice, but it's pretty big news: the SEC actually enforced one of the most crucial regulations preventing public companies from cooking the books, known as Regulation G. The agency reached a settlement today with SafeNet Inc. and two former senior officers, for Reg. G and options backdating.

Reg. G is designed to protect investors whenever companies stray from Generally Accepted Accounting Principles. Shamefully, the SEC has never gotten around to enforcing this rule until today. It dates back nearly a decade to the Enron era.

Reg. G also figures in the ongoing Overstock.com circus, in which the company has repeatedly strayed from GAAP and brazenly manipulated its earnings. The latest chapter in the Overstock saga came on Monday, when the company--increasingly behaving like a sleazy penny stock shop--announced that it was going to miss the legal deadline for filing its third quarter 10-Q.

White collar crime-fighter Sam Antar, who has been repeatedly stalked and harassed by Overstock for scrutinizing the company, pointed out in his blog that the typically ambiguous filing may disclose yet more Regulation G-GAAP delinquency.

Overstock.com's wacky CEO Patrick Byrne, who refused to field any questions from Sam at a sham conference call on Nov. 3, was asked by Sam flat-out if Overstock was in compliance with Reg. G. Instead of responding with his typical bluster and bullying, Byrne meekly hid behind Regulation FD--ironic, since he has routinely violated that other unenforced rule numerous times, releasing material information on bulletin boards and blog posts.

Here's what I think is interesting about the late filing notice. It says that Overstock "is continuing to analyze the proper accounting treatment for $785,000 the registrant received during the first quarter of 2009." It goes on to say that the company "believes the amount is properly recognizable in the first quarter of 2009, when the cash was received. However, the registrant is continuing to review the issue, and may ultimately conclude that the amount should have been recognized in 2008."

As one longtime watcher of this sleazebag company pointed out to me, "if you believe an accounting treatment is correct, then why would you be analyzing it to determine if it is in fact correct?" One can only imagine what's going on behind the scenes. From what I've heard (and you'd be surprised who's talked with me), Overstock's executive offices have the atmosphere of a loony bin.

Sam has made this company's Reg. G violations crystal clear in his blog. It's now up to the SEC to, for the second time in its history, enforce that crucial investor-protection rule.

Oh, I almost forgot SafeNet. The allegations against that company read as if they were taken out of Sam's blog, if you substitute "Overstock" for "SafeNet." It's all there--manipulating earnings, using non-GAAP measures to mislead investors. Its top officials got slap-in-the-wrist fines, promised not to do it again, all the while neither admitting nor denying liability.

Wouldn't it be great if the SEC, one of these days, actually forced one of thee crumb-bum companies to actually admit that they did something wrong?

© 2009 Gary Weiss. All rights reserved.

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Thursday, November 05, 2009

'Translating Byrnespeak'


Ask him no questions and he'll tell you no lies

I stumbled on this post in a stock message board today, analyzing the recent Wall Street Journal video interview of my Marley, Overstock.com's ever-slippery CEO Patrick Byrne.

The interview is available here. I assume the interviewer picked Byrne because he is "controversial," sort of the way the H1N1 virus is "controversial."

According to the transcript, Byrne is hanging tough on the company's accounting, calling his fourth quarter earnings numbers GAAP-compliant when they clearly are not.

But the real thing to treasure about this interview is its Nixonian quality. I'm taking the liberty of reprinting the message board post in its entirety below:


An amusing portion of a transcript on the Wall Street Journal website in which Julia Angwin interviews Patrick Byrne. (The transcript is shot through with typos and anomalies, which I will not bother to correct or cite within the quotation, which has been pasted here.) Her question: "Angwin: Jeff Matthews says, 'Patrick Byrne has said thousands of companies have been destroyed by naked short-selling. Ask him to name 100, or just 10.'”

Answer in Byrnespeak:

First of all, I quote Robert Shapiro on that. Shapiro was, is a Harvard PhD, former undersecretary of commerce for economics. He wrote a paper in ‘04 that said at least 200 had been damaged. He later upped his estimate to a thousand. You basically look at any company that’s been on the RegSHO list, which is this of companies, publicly traded companies that are seeing a certain technical defect in their stock settlement. And that’s a pretty good sign –it’s possible to appear on that list without anybody have [sic] been purposely doing anything wrong, but it’s overwhelmingly likely that if you’re on that list, it’s because somebody at some point has been manipulating your stock. In fact, to me, then, the naked short-selling issue is just one problem of the whole bear raid issue, which is a question of stock manipulation. The SEC has clearly been in the pocket of hedge funds, and inappropriately close to hedge funds, which is why Bernie Madoff was able to get away with it for so long. And, I think, there’s some unseemly relationships developed on Wall Street–I won’t go into any more detail–that let companies, that let hedge funds basically take out fire insurance on a company and then set a match to it.
Number of words: 216. Responsiveness: none. Twisting of facts: equating "damage" with "destruction", and "thousands" with "a thousand", within the context of the question and answer. Irrelevant distracting arguments and attacks: 4, at a minimum, depending on how you count them: Equating the SHO list with destruction; citing authority for a basic underlying opinion without answer the question, which was as to specifics; subsuming the question, without answering it, into a larger category, thus trying to make the answer look irrelevant; and attacking the SEC and other unspecified Wall Street figures rather than answering the question.

Appropriate answer in English, fleshed out with proper politeness:

I'm sorry. I can't name any.

Number of necessary words: 6. Responsiveness: perfect. No irrelevancies or distractions.

What a boob. It's a pity Angwin isn't more adept at follow-ups.

Another typical Brynesian example: "Angwin: There’s all this talk about Lord Sith, or Sith Lord. So, for people who don’t know, I guess you, in August of 2005, said that there were people who were trying to drive your stock down and you believe that there was somebody named a Sith Lord who was orchestrating this. And so Phil Painter, our reader, wants to know, 'Who is the Sith Lord?' And he wants you to say it’s a real, identifiable person."

The answer in Byrnespeak:

Well, first of all, the call I gave was about much more than my own company. And, in fact, it seems to be one of the elements of the cover-up not to talk about what I disclosed on that call. Which was basically that there were a set of hedge funds, who were playing these games. They had an inappropriate–I think the intersection, as long as we’re asking–the intersection of these hedge funds and the journalists, this guy named Jim Cramer, I supplied a certain video of Jim Cramer to a certain comedy show, that was used in revealing and exposing Jim Cramer. I also went after the SEC for being captured; I went after Kroll, which is sort of the Blackwater of corporate intelligence, who I said builds networks of corporate insiders for hedge funds. Well, if you look in the indictment of Raj Rajaratnam, you’ll see a lot of these things I was talking about in ‘04 and ‘05 seem to be bubbling to the surface. The sith–when the public is ready to acknowledge that there is a sith, that there is a sith among us, we’ll get to the Sith Lord.
An even more evasive answer than the previous example. I won't even bother to translate it into English, since it's just 198 words, all of them meaningless and irrelevant to the question until we get to the part where the public is to blame for his inability to answer. Yes, sir. When the public is ready, Byrne will speak out with a clarion voice. Don't hold your breath, though. I have an idea that Byrne won't ever find that the body politic has a sufficient appreciation of his fantasy world to warrant his condescending to provide the information requested.

Yes, what a boob: a boob for the ages.
UPDATE: Apparently the "Sith Lord" is a sensitive point for my Marley, sufficient to send him growling into his computer, rewriting history in this rubbish.

To recapitulate: Byrne used "Sith Lord" to describe a specific person who was manipulating Overstock shares. There's no doubt about it at all, and the problem is not "choagies" but Byrne's deceit. See Bethany McLean's Fortune article.

He lied in a conference call, and now he's lying about his lie. This guy is really a phenom.

© 2009 Gary Weiss. All rights reserved.

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Wednesday, November 04, 2009

Patrick Byrne Can Run From Tough Questions, But He Can't Hide

To no great surprise, Overstock.com CEO Patrick Byrne turned off the microphone at his quarterly conference call yesterday, refusing to allow questions from white collar crime-fighter Sam Antar--and even breaking his promise to respond to questions that Sam had previously emailed.

As Sam points out in his blog, Byrne's numbers are useless. They can't be accurately compared with prior quarters.

You really have to wonder: Where is the SEC?

The agency now had two investigations pending against Overstock: one probing previous earnings restatements, which clearly pertain to Byrne's creation of a "cookie jar reserve" to manipulate his financial statements, and another, disclosed yesterday, regarding its 2008 Form 10 K/A and second quarter 2009 10Q.

But as the Madoff investigation proved, a determined miscreant can easily shrug off an SEC probe by simply lying. A previous investigation ended without action. Will the SEC drop the ball again this time?

© 2009 Gary Weiss. All rights reserved.

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Tuesday, November 03, 2009

RIP, Sharesleuth Business Model

When Mark Cuban opened his Sharesleuth website three years ago, with a "business model" based on his trading in advance of Sharesleuth items, Cuban smugly heralded the site as the Next Big Thing in financial journalism in a series of arrogant blog posts.

It hasn't turned out that way, as is evident from the latest item. Today the site had an item on Michael J. Xirinachs, a "financier" enmeshed in the fraud involving naked shorting poster child Universal Express. As usual, Cuban hasn't taken a position in any of the stocks mentioned in the item.

That's significant because Cuban is supposed to be financing this site by doing just that. And he hasn't taken a position in any Sharesleuth stocks since this item on a Chinese company in March 2008.

Maybe the reason is his ongoing insider trading case. But I suspect that he hasn't been trading in advance of these items because he can't. There are a lot of good shorting opportunities available among microcaps, but very few of these stocks can be shorted.

In fact, I think it's pretty plain by now that the Sharesleuth business model is dead. Good riddance. It's failure was pretty obvious back in 2007, after it emerged that his trading wasn't the money machine he had anticipated.

This disclosure, if current, shows that Cuban has taken positions in a grand total of three companies, and that just two of his short positions are still pending.

Sharesleuth also has been pretty much of a flop from a journalistic standpoint, and not just because of the obvious ethical issues. It just has not been a particularly useful website. Sharesleuth's output has been sparse--he has embarked on full-scale "investigations" on a grand total of five companies in the past three years, and "short takes" on a few others. The items tend to be overlong and written in police-report fashion, with little context.

When he startd up Sharesleuth, Cuban said as follows in a blog post entitled "Business Journalists Should be Thankful":
If Sharesleuth is successful, you can bet that any of the above with billions of dollars at stake will gladly hire the best and brightest business journalists they can find.Bigger the rolodex, the better. Old is the new young. Crusty is the new Yuppy.They will unleash those journalists to uncover stories that can give them an edge.

That hasn't happened and you know what? I don't know of any investigative journalists who are too broken up about it.

© 2009 Gary Weiss. All rights reserved.

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Sunday, November 01, 2009

Madoff Lesson: Liars Can Thwart an SEC Investigation

The 536 exhibits released by the SEC Inspector General late Friday on Bernie Madoff don't seem to contain any explosive new revelations, but underscore an essential point about SEC investigations: if you are the target of a probe, just lie, again and again.

The SEC won't check up, even if it's obvious.

Ask Bernie. The documents show that he lied on the most obvious thing possible -- whether he managed money for people. He said no. The SEC either knew this was a lie or was brain-dead not to check up on it, if for no other reason than that there had been two articles in the media in 2001, in Barron's and MAR/Hedge, about what an astounding money manager he was, and raising questions about just how he performed such a fete. (Included among the exhibits is the transcript of a 2009 interview with the author of the MAR./Hedge article, in which he complained that he was ripped off by Barron's.)

Notes to one interview with the SEC in April 2005 say that "Based upon [name deleted] algorithm and capacity to manage money, this led us to ask if [name deleted] (or anyone at the firm) has ever managed money for an outsider. Bemie said, Never."



A few days later, an SEC investigator reported: "I specifically asked Bernie if the London office manages money for outside investors. Bemie said it is my money."



And lastly, here's a record of the cock-and-bull story that Madoff gave the SEC during an interview a few weeks later:


One thing I've learned over the years is that the SEC has a very poor sense of what is actually happening out there in the real world, that it relies too much on documents supplied by the target of the probe, and that it fails to do elementary, shoe-leather investigation. In this case, some basic investigation would have proven that Madoff was lying about a fundamental fact.

The SEC simply didn't have the contacts and street-level sources required to contradict Madoff on something as simple as whether the man ran money for people.

Instead, the probe showed the SEC investigators--one of whom wound up marrying Madoff's niece--tripping over their own shoelaces. Madoff himself marveled at the incompetence of the SEC.

We've seen the SEC's ineptness proven time and time again, such as in its botching of an investigation of Overstock.com's accounting, despite in-your-face GAAP violations uncovered by a whistleblower. The probe has been reopened, but Overstock.com CEO Patrick Byrne has already learned the Madoff' Lesson: Lie, early and often. Lie on your financial statements. Lie in your conference calls. Put aside a "cookie jar reserve" to manipulate your earnings.

The SEC doesn't give a damn.

There are more large and material lies, I hear, unrelated to the financial statements, that haven't publicly surfaced.

Will the Overstock strategy of deception work? The Madoff case is depressing precedent that it will, but the jury is still out.

© 2009 Gary Weiss. All rights reserved.

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