Overstock.com's Treasurer Has Left the Building

Another Overstock official leaves for greener pastures

Sam Antar has a blog item on the latest news from the loony bin that is Overstock.com: seems that its Treasurer, Rich Paongo, quietly skedaddled in February, and the company "forgot" to file a Form 8-K disclosing that material event.

What makes it material is that Paongo left one month after his name emerged in correspondence with then-CFO Chidester over the company's hidden cash flow woes. Chidester left the company at the same time as Paongo, but the latter's departure was never revealed.

Indeed, word of his decision to seek greener pastures in the middle of a recession came not from any official channel but from an anonymous comment to my blog item linked above. The comment was from out in Utah, no doubt from one of the company's numerous loose-lipped insiders. It's confirmed by Paongo's Linkedin.com and Twitter public profiles.

I guess Byrne is hoping for the Allied Capital Treatment in his ongoing tussle with the SEC. He may be right. It's hard reading the SEC Inspector General's report without realizing that Overstock probably has got this matter licked. But hey, I'd be happy to be proven wrong.

Byrne, meanwhile, has until Wednesday to file a 10-K for 2009. Followers of this always entertaining company have marked that date on their calendars, but I doubt that these dudes have got their Quarterly Lie figured out just yet. Another delay would not surprise me.

© 2010 Gary Weiss. All rights reserved.

Restatements Highlight Overstock.com's Lies to Salt Lake Tribune

Overstock.com's stunning admission yesterday that its recent financial statements were phony --vindicating years of hammering by whistleblower Sam Antar-- highlights an issue that I think could loom large in the SEC's probe of this creepy little company.

It all has to do with a fish story that Overstock.com president Jonathan Johnson gave to the Salt Lake Tribune, which appeared in the paper on Tuesday. Of all the lies that have spewed forth from this corporate crime petri dish over the years, these were among the most blatant and, I think, could be damaging to him personally, and to the company.

Johnson told the Trib that David Chidester, the senior vice president for internal controls, had not departed from the company because of any material issue. Johnson piled on the hooey, saying that Chidester had left because... well, because. No particular reason. He had been there for ten years, and it was time to move on.

Yet at the same time that Johnson was giving that rubbish to the Trib--the article appeared online the evening of Monday, Feb. 1--Johnson already knew that a decision had been made to restate all the recent financials, and that the Overstock board's Audit Committee had specifically determined, three days earlier, on Jan. 29, that its financial controls had been deficient for an extended period of tiem.

In the Form 8-K filed with the SEC yesterday, Overstock disclosed that the Audit Committee said the following on Jan. 29:

The Audit Committee has instructed management to prepare a comprehensive review and analysis of the causes of the errors identified above. The Audit Committee has further instructed management to submit to the Audit Committee a comprehensive detailed plan for the remediation of the underlying cause of the errors and for the implementation of stricter policies to avoid errors or deficiencies in accounting procedures and application going forward.

. . . In connection with the restatement of the Company’s fiscal 2008 consolidated financial statements, management has reassessed the Company’s controls and procedures including internal control over financial reporting as of December 31, 2008. Management has concluded that there was a deficiency in the operating effectiveness of the Company’s controls in place related to accounting for billings to drop ship fulfillment partners which constituted a material weakness. Accordingly, management’s report on internal control over financial reporting for fiscal 2008 can no longer be relied upon. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Johnson surely knew all of this--it had happened on Friday, Jan. 29--at the time that he fed the following ca-ca to the Trib three days later concerning the exit of the exec who was CFO through the end of 2008, and afterwards head of internal financial controls:

"David had been with us over 10 years. It felt like for both David and the company it was time to move to something new.

"I don't know who said what first, but it was clearly a mutual agreement. We've grown a lot in 10 years. We are a big organization and thought it was time for both parties to move on."

Johnson was right in one sense. No, Chidester hadn't left because of a recent Big Money article describing a sales tax avoidance scheme and FUBAR internal controls. He left because of something considerably more important. But Johnson--who, remember, wasn't obliged to say a thing to the Trib--decided to mislead and lie by withholding a material fact, which was that Chidester was in hot water with the board of directors. He wasn't walking away from a 300K job because he felt like going out into the job market in a recession.

Johnson's motivation in not lying would not be something as old-fashioned as "telling the truth," but a more primal urge called "self preservation." Rule 10b-5 of the securities laws forbids corporate officers not just from lying, but make it verboten "to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading."

Johnson once famously said about Sam Antar that he "can’t read his blog because it’s so full of lies." He clearly meant to say "full of truth."

I'll be interested to see if the Trib ever gets around to reporting Overstock's disclosures yesterday. And if it does, will it describe its own role in Overstock's scheme to mislead the media, the public, and its shareholders.

Most newspapers would be upset about being lied to this way, let alone to be used by a company to commit securities fraud. But remember that this is Utah, and evidently the rules of journalism don't apply there. Remember that there is another statewide paper, the Deseret News, and it hasn't breathed a word about any of the travails of this open sore in its neighborhood.

Another thing I'll be interested to see is if either Salt Lake City newspaper adjusts its heretofore uncritical view of Overstock and its wacky CEO, Patrick Byrne, in light of recent events. Byrne has so far been out of pocket, but I'm sure he'll deploy his possible-pederast fetchit boy, Judd Bagley, on a diversion mission fairly soon. Plenty of kids out there for these two douchebags to stalk.

UPDATE: The Going Concern accounting blog has this to say about the SEC finally taking action against these bums:

So while this appears to wrap up the SEC’s Division of Corporation Finance investigation, one little problem that still remains is that the SEC’s Enforcement Division has not wrapped up its probe of the company. Yeah; so there’s that. Considering the the track record of the SEC, we’d typically give a company a 50/50 shot of coming out of a probe by the Enforcement Division unscathed but in the case of Overstock, we’ll be going with Schape’s {SEC chairperson Mary Schapiro's] crew.

© 2010 Gary Weiss. All rights reserved.

Man Bites Dog in Salt Lake City

A week ago I described how Utah's two statewide newspapers, the Salt Lake Tribune and Deseret News, had inexplicably failed to cover the departure of a key exec from the corporate crime petri dish in their backyard, Overstock.com.

Today, a week late, the Tribune decided to clue in its readers on the departure of David Chidester, head of internal financial controls, with this article in its business section. It's so lame that the Trib might just as well not have bothered.

Chidester left a day after an article in the Big Money described how Overstock's wacky CEO Patrick Byrne had concocted a sales tax avoidance scheme, "Operation Heist and Freeze," and how the SEC-investigated company had pretty much no internal controls. Both involved Chidester, who was CFO when that was happening.

Byrne was, uncharacteristically, "unavailable," but the Trib quoted Overstock president Jonathan Johnson mouthing this pap:

"David had been with us over 10 years. It felt like for both David and the company it was time to move to something new.
"I don't know who said what first, but it was clearly a mutual agreement. We've grown a lot in 10 years. We are a big organization and thought it was time for both parties to move on."

It's understandable that the Trib would publish this hooey, but less understandable why there is no evidence of a follow-up question, such as "Who is going to take his job?" I mean, he didn't even have to ask the guy anything obvious like, "OK, what's the real reason?"

Apart from that, the Trib did not clue in its readers on just why the Big Money story was relevant. It says only that the Big Money article "said [Byrne] is frequently in the news for alleged 'outrageous pronouncements,' especially connected with his efforts to stop naked short-selling of the company's stock and his battle with" a hedge fund.

"Alleged" outrageous pronouncements? Naked shorting? The article had nothing to do with that, or its junk lawsuits. Actually, the Big Money said that he attacks critics and the media, to prevent journalists from publishing critical reporting on Overstock. I realize the Trib doesn't cover Overstock--that's a given--but at least it could report the truth about Overstock's reaction to the reporters who do write about the company.

Nor is there a mention of what the Big Money did report that was relevant to Chidester: the sales tax scheme or its discussion of the absence of internal controls. It talks about emails involving Chidester and documents, but doesn't describe what they say. But it does quote Johnson as saying that "allegations that Chidester was forced out because of the article [are] 'conjecture' that is 'just wrong.'"

Sure, they would be conjecture, if the Big Money article hadn't specifically dealt with accounting issues, and just had dwelled on Byrne's attacks.

By the way, just assuming for a moment that there is a connection with the Big Money article, or it was other than a happy-as-a-lark mutual thing, this latest Johnson pronouncement means that Overstock has yet another shareholder-disclosure issue. It's not copacetic for a company to publicly lie about why key execs leave.

I really don't know any other statewide newspaper in the country worth its salt that does such a shoddy job of covering a major newsmaker within its borders. Was the Trib deliberately taking a dive for Overstock or does it simply not know how to do its job? I honestly don't know. I will say this about the Deseret News: it's not worried about appearances. It wouldn't write anything negative about Byrne if he was arrested for a triple homicide.

Except for the Big Money and occasional articles in non-Utah newspapers, the only time Overstock's sliminess is ever analyzed is by blogs, notably white collar crime expert Sam Antar. He has a further analysis today of what Chidester's departure means.

I have to admit the explanation Johnson gave is funny. Imagine the following exchange between Chidester and Byrne:

Chidester: Hi there, Patrick. How's it going? You know, I've been with the company for 10 years. I make $300,093 a year, nice stock options, pension plan. Real cushy job. I've really grown a lot.

Byrne: Yeah, you have. Big organization!

Chidester: Yeah, big organization. So I was thinking, hey, cushy job. Grown a lot. No problem, right?

Byrne: No problem at all. Love your work.

Chidester: You do. I mean, you didn't even cut my pay when you demoted me a year ago! I love the work, grown a lot, I'd say it's time to move to something new.

Byrne: Yes! I was thinking the same thing. So shall I issue the customary press release saying what a great job you've done?

Chidester: Naah. Just wait five days and issue a one-line 8-K. That way they'll think I'm being pushed out or quit cause I was mad or something.

Byrne: Yeah! By the way, where are you going to get another cushy 300K job in Salt Lake City?

Chidester: Beats me.

Funny, huh? Too bad for Utahns that the Salt Lake Trib decided to be part of the joke, rather than letting in its readers on the punchline.

Seriously, though, Utahns, whether or not they are shareholders or employees of Overstock, really are short-changed by the neglect of its two major papers. A company is going straight to hell right in their backyard. A little effort could produce some significant journalism--I know that from the trans-continental communications I personally have received. But they just don't have the guts, or competence, to do their job.

It doesn't have to be this way, you know. Years ago, when I was working in Connecticut for the Hartford Courant, we used to get our asses kicked daily in coverage of local businesses (such as General Dynamics and Pfizer) by the The Day of New London. A hometown paper doesn't have to suck.

© 2010 Gary Weiss. All rights reserved.

More Fallout From Big Money Article: Overstock.com ex-CFO Quits

More fallout from The Big Money's devastating article on the corporate crime petri dish, Overstock.com: the official in charge of the company's nonexistent internal controls, a disaster area exposed in the article, is out on his rump.

The company issued an 8-K today, at the edge of the time allowed by law, announcing that ex-CFO David Chidester departed the day after the article appeared:

On January 20, 2010 Mr. David K. Chidester left by mutual agreement, effective immediately, from his position as Senior Vice President, Internal Reporting and Information, of Overstock.com, Inc.

In the article, ace financial writer Roddy Boyd pointed out that the company basically didn't have internal controls.

The Big Money has obtained documents showing that in the months after Overstock filed its lawsuit, a series of mishaps surrounding its bungled inventory-management software upgrade pushed it into some dire financial straits. The crux of the problem—which had been building for several months while Byrne railed against short-sellers and sundry business reporters—was that since Overstock’s software system couldn’t track its inventory well, its accounting staff had trouble deciphering how much it owed and whom it had to pay. [Emphasis added]

Note the last sentence. That little detail--not knowing what was going on--didn't prevent Overstock's Creep Executive Officer, Patrick Byrne, from putting his John Hancock alongside Chidester's on Sarbanes-Oxley-required certifications attesting to the soundness of its internal controls. Chidester was CFO during that time.

Overstock restricted itself to that one-line 8-K. No customary press release saying what a terrific, competent guy just vamoosed.

White collar crime-fighter Sam Antar comments today on Chidester's departure,

In addition to signing false Sarbanes-Oxley certifications, Chidester made false claims to investors about Overstock.com's compliance with SEC Regulation G, governing non-GAAP financial measures, as I will describe in more detail later in this blog post.

The term "mutual agreement" usually means that the company does not want David Chidester around to answer your questions and Chidester does not want to be readily available to respond to your inquires. After all, David Chidester knows where the "black holes" are to be found in Overstock.com's financial reporting irregularities.

It also could mean that Chidester was paid a nice hunk of cash to keep his mouth shut. That won't stymie the SEC investigation into the company's accounting, if it uses its subpoena power
to get Chidester to cough up what it knows.

One thing I wonder is whether the two local Salt Lake City newspapers will continue to ignore all this. Neither paid any attention to the Big Money article. I don't expect much from media outlets within clutching distance of Patrick Byrne, but it will be interesting to see if they continue to keep their readers ignorant of the sewer in their backyard.

UPDATE: Seth Jayson weighs in, with some choice comments on Byrne and his hired goon, the possible pederast and compulsive child-stalker Judd Bagley.

True to form, neither Salt Lake City newspaper picked up on this.

© 2010 Gary Weiss. All rights reserved.

Overstock Execs Display Stock-Trading Acumen

Managerial skill is in short supply at the corporate train wreck Overstock.com, so I was cheered to read in Sam Antar's blog today about the jim dandy trade that was made by Overstock chief financial officer David Chidester.

Seems that Chidester skillfully managed his personal stock portfolio, with a degree of finesse matched only by his management of the company's red-ink gusher. He exercised some options and, rather than hold on to the stock -- heaven forbid! -- dumped it like the trash that it is, raking in proceeds of $77,000. Senior VP Jonathan Johnson had similarly cashed in a month ago.

Golly, could it be that the recent run-up in Overstock shares could be the "pump" part of the expression "pump and dump"? These two gents are certainly dumping.

Perhaps their lack of enthusiasm for their own company has something to do with the thrust of Sam's blog item today, which is that the company is continuing to cook its books. Or as Sam puts it, "continues to violate Regulation G and materially overstate EBITDA in the first quarter of this year."

The shares dumped by Chidester and Johnson were no doubt bought by hapless investors who believe the excuses of the company's wack-a-doo CEO, Patrick Byrne, and swallow the flim-flamming financial statements.

What I'm wondering is why the SEC let's 'em get away with it.

© 2008 Gary Weiss. All rights reserved.

Was Overstock President's Resignation Backdated?

Say, didn't that fellow quit the day before?

More weird tidings from my favorite corporate train wreck, the ever-slippery Overstock.com.

Seems that documents filed with the SEC raise a troubling question: Was the company president's resignation backdated? The company says he quit on Dec. 31, and produced a "resignation letter" with that date. But the company's own SEC filings provide evidence that he hadn't quit as of Jan. 1.

Indeed, I get the impression, from reading through all the documentation, that Lindsey didn't quit until the day of the announcement, Jan. 2.

Sam Antar's blog has all the details. Jason Lindsey showed up on a significant SEC filing--a revolving line of credit note -- that was signed by Overstock's CFO, David K. Chidester, that was date Jan. 1.

If Lindsey had left Dec. 31. Chidester (right) presumably would have known that, even in a joke of a company like Overstock. Remember that this is not some routine piece of paper, and that Lindsey was not mentioned in passing. He is listed as one of three executives authorized to request cash payments under that note. That is a crucial provision of that very important document.

Sam also notes that Overstock's SEC filings are inconsistent on when the amendment to the credit agreement was signed.

The the 8-K filing says it was Dec. 31, even though the amendment itself says Jan. 1.

Sam observes:

The key question is who lied: Jason C. Lindsey, Patrick Byrne, David K. Chidester, Overstock.com's disclosures, or the company's documents? For at least one of those persons, disclosures, or documents to be truthful, the others need to be lies.

Byrne's message board posting, at 8:41 p.m. Utah time on Dec. 31 -- a few hours after Lindsey supposedly resigned -- provides further evidence that Lindsey didn't quit on New Year's Eve. Not only does the post fail to disclose that the company's No. 2 had resigned -- with Byrne taking on his duties -- but talks about Byrne's "calender clearing up a bit."

That forward-looking statement (to use SEC jargon) is either false and misleading-- or Lindsey was still on the payroll.

Still more lies and inconsistencies for the SEC to sort out, in its continuing investigation of Overstock.com.

© 2007 Gary Weiss. All rights reserved.



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