Closing the File on a Criminal and Junkie Named Judd Bagley

Bagley copped a plea to eight felony counts of forgery

Updated October 2015 with police interrogation video and photo of Mark Mitchell.
Updated April 2015 with mugshot and details from arrest record and libel suit.

I've written about a rogues gallery of criminals over the years, ranging from Mafia capos to penny stock hustlers to Bernie Madoff, but by far the most nauseating was a corporate hatchet man from Utah named Judd Bagley.

Bagley (a/k/a "Judson Bagley") called himself a practitioner of "P.R. 2.0" or something like that, but there was nothing novel about his job, which was to be sure that if you were a reporter or analyst, you didn't dare criticize Overstock.com and its much-ridiculed CEO, Patrick Byrne. That was no easy job, because Overstock has been beset by a series of grave allegations since it went public in 2002. Its long history of serious issues runs the gamut from cheating customers, as successfully charged by California prosecutors, to gross mismanagement, to misleading investors about its financial condition.

Byrne after his arrest on gun charges

Bagley did his job with maniacal zeal. From 2006 to 2011—when he abruptly ceased his activities after a libel suit by a Canadian stock promoter his website falsely accused of ties to Al Qaeda—he frantically stalked and harassed journalists and critics of this third-rate retailer. He didn't beat around the bush; one of his tactics was extortion. In the process he went on and off the company payroll. (Even after the events depicted in this blog, which would prevent him from getting a job as  bank teller, Byrne named him "cryptocurrency [Bitcoin] general manager" as well as "director of communications." In January 2017 he left to join something called InsideSales.com. In August he switched to Evernym, Inc. as director of communications.)

Byrne is noted for misogyny and paranoid delusions, so preventing the media from writing negative stuff like this about him, and keeping his arrest on gun charges out of the occasional puff pieces, was a full-time job in itself.

To accomplish his mission, Bagley spun elaborate conspiracy theories and engaged in smear campaigns like this one targeting Bloomberg's Susan Antilla. Bagley stalked the wives and children of critics, once creating a fake Facebook identity for that purpose. He was largely ignored by the media. One exception was Cade Metz, a conspiracy-minded tech writer with The Register and then Wired who swallowed whole Bagley's fabrications.

One of his tasks was to threaten and intimidate critics. Here he sought to blackmail a blogger who ran a website exposing the Overstock smear campaign.

More examples of Bagley's efforts to silence critics of his boss can be found here.

It was a dirty job, but there's little question that his tactics deterred critical coverage by both the media and analysts. In 2010, after a relentless series of posts by Sam Antar, the accounting fraud expert and reformed felon, Overstock restated its earnings to throw out years of phony profits. Sam wrote about it here. See if you can find a reference to it in the media.

Fake news promoter Mark Mitchell

 
Bagley was joined at the Deep Capture fake news website by Mark Mitchell, a disgraced former Columbia Journalism Review columnist who wrote for the site meandering, largely fictional paranoid conspiracy theories. He was the principal author of the article that resulted in the Canadian libel suit.

With the media tamed, Bagley has paved the way for Overstock.com chairman Jonathan Johnson, a doctrinaire libertarian and foe of unions, to run for governor of Utah. It's not known if Johnson's political ambitions have curbed Bagley's cyberstalking in recent years. But we can surmise that what I'm about to describe, which has not come out publicly until now, wouldn't do him a bit of good if he runs.

Bagley always seemed a bit strange, a bit "off"—obsessed, paranoid, prone to public tantrums that seemed odd for a p.r. guy. He gave the impression of being a ticking time bomb. Once he directed a racist anti-Indian slur at me because I have an Indian-born wife.  Financial commentator Barry Ritholz once described Bagley as "a career douche bag" and, due to his stalking the children of Overstock critics, a "possible pederast." Still, no one ever quite got a handle on why Bagley was quite so weird. I certainly couldn't figure him out.

Well now we know the answer: It turns out that Bagley was and is a raging drug addict. His habitual lying now makes sense as well, as he is a confessed forger.

Sam Antar's blog revealed today that Bagley was arrested in 2013 on eight felony counts of forging prescriptions so he could illegally acquire the addictive drugs Lortab and Adderall during 2012 and 2013. He pleaded guilty to reduced charges, was fined and sentenced to one year in prison, which was suspended, and 120 hours of community service and probation, monitored by an ankle bracelet. The court filings can be found here. It's not clear from the record if Bagley was required to undergo periodic drug testing. If not, that was a significant oversight.

Bagley tells the truth (for a change)

Sam also reveals that Bagley, who liked to project a "family man" image as he stalked the families of Overstock critics, preys on lonely housewives when he isn't shooting up. (And they would have to be desperate housewives too, given his less-than-matinee-idol physical appearance.)

In lawsuit filings, Bagley confessed to cheating on his wife Kristen with a married woman, the mother of a student at a school where he is a sponsor, the Karl G. Maeser Preparatory Academy in Lindon, Utah. This took place at about the same time he was forging drug prescriptions, and continued even after he was arrested and "rehabilitated." The husband of the woman he preyed upon sued Bagley, who first lied about the affair and blamed his victim. After stonewalling discovery and seeking to smear the husband, Bagley finally admitted to the affair as the evidence mounted up. The suit's filings are online here.

Bagley copped a plea to avoid prison

As Sam points out today, "It was not the sad excess of a man in midlife crisis, but the vicious act of an out-of-control drug addict, a tawdry affair that smacks of sexual harassment--in addition to exposing Bagley as an absolute hypocrite."

Forging a prescription is low-life addict behavior, really high-risk, and Bagley was caught doing it repeatedly. He obviously needed a fix badly.  Lortab, "when used illicitly... is often crushed into a powder and either snorted or an mixed with water and injected. Both of these routes of administration result in a faster and stronger high, often compared to the high of heroin." Adderall has been dubbed "America's Favorite Amphetamine."

After this blog post initially appeared I obtained Bagley's arrest records from prosecutors under the Freedom of Information Act.

The arrest records can be found below in all their nauseating splendor, replete with surveillance photos.

In a rambling confession to police, Bagley tried to excuse his conduct by treating his addiction like an Overstock book-cooking scheme—by lying about it. He said that he needed the two drugs for "focus issues," but that a nurse-practitioner wouldn't give him a prescription, which made him "frustrated," and that he "took it into his own hands to make up the deficit" by forgery. (In other words, he used the same technique he deployed in his smear campaigns against the media and Byrne critics: if Bagley couldn't find anything, he "took it into his own hands to make up the deficit" by making stuff up.)

He went on to wheedle and manipulate the cops as if they were gullible reporters, piling lie upon lie as addicts do, claiming "what he was doing was not for Euphoria or anything like that."

Bagley at the pharmacy that alerted police to his forgeries (security camera photos).

Sure, I guess that's why he committed eight felonies, a crime so blatant that he was not surprised at all when the Lehi Police Department appeared at his door. (He said he "knew what this was regarding.") Fortunately for himself, Bagley wisely copped a plea. He is not so lucky in Canada. Byrne has insisted on going to trial in a libel suit brought by a victim of fabrications on the "Deep Capture" conspiracy site. The trial began in mid-April 2015, and does not seem likely to end well.

Note that the darling man brought along his young daughter while he was getting a fix, according to a surveillance photo from Wal-Mart security in his police file, showing the "suspect" emerging from the scene of the crime.

Bagley brought his daughter to commit a forgery at Wal-Mart (security camera photo).

Since Byrne is now devoting his energies (and Overstock's limited cash) to various bitcoin-related publicity stunts, with Bagley in charge of the hype, it's reasonable to speculate if Bagley has been getting his fixes on the Silk Road since the prescription-forgery route hasn't worked out for him. If I were a Utah narc, that's what I'd be exploring.

I knew that one day Bagley would be disgraced and discredited, and that his victims would be vindicated by his own self-destruction. It was inevitable: he was just too out-of-control. But I assumed the coup de grâce would come from the libel suit or from stock-fraud charges. I never expected that his downfall would be quite so grimy and pathetic.

UPDATE: In October, 2015, Utah authorities released Bagley's interrogation video in response to a Freedom of Information request. It's available below, edited only to remove personal information at the beginning. It's nauseating stuff, to be sure, but the video is filled with stuff that might intrigue any student of criminology, drug addiction, or just plain sleaze.


This line from the Lehi detective interrogating Bagley, at 53:35 in the tape, is particularly insightful:  "obviously this is stuff that has been going on for years." You'd thing he's been reading this blog.

In November 2015, M.L. Nestel of The Daily Beast authored this article on Overstock.com, which contained the first media mention of Bagley's legal troubles. Shortly before the article appeared, Nestel was attacked by Byrne's Deep Capture blog, in a hysterically-worded item (Nestel was accused of "serving the dark side") that was later taken down. It is archived here.

© 2015 Gary Weiss. All rights reserved.
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My latest book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press. Click here to order the book from Amazon.com, and here to order it from Barnes & Noble. Follow me on Twitter: @gary_weiss

The Utah Newspapers Fail -- Again

Overstock.com, best known for its Facebook pretexting campaign against journalists, yesterday restated its financials for 2008 and 2009, turning a much-ballyhooed fourth quarter 2008 profit of $1.014 million into a $705,000 loss--vindicating critics, especially Crazy Eddie mastermind-turned-crime fighter Sam Antar.

At the time the now-retracted "profit" was announced in January 2009, Overstock shares climbed 21% in one day. The company had "beaten analyst expections" of a loss, Reuters reported at the time. I am amazed that Overstock has not been prosecuted criminally for this blatant securities fraud. Yet an ongoing SEC investigation has produced not so much as a slap on the wrist.

Also yesterday, Overstock announced a $7 million profit for 2009 that would have been a loss were it not for paper-shuffling and nonrecurring items. It faces a serious criminal probe of its advertising practices in California, for which it is on the hook for as much as $8.5 million, and its internal controls are a shambles.

All of the above is plainly disclosed in the company's filings with the SEC yesterday. But you wouldn't know about any of this by reading Overstock's hometown newspapers, the Salt Lake Tribune and Deseret News, or by reading an AP puff piece that was subsequently churned out of its Salt Lake City bureau.

Sam today recounts how Overstock.com CEO Patrick Byrne and its president Jonathan Johnson systematically lied about their financials over the past few months--lies they were officially forced to disavow yesterday, as they issued restatements for four financial statements in 2008 and 2009.

Sam describes in detail how Byrne used nonrecurring items to turn his latest loss into a profit -- thereby engineering a 20% rally in the stock yesterday. Thus Overstock shareholders and employees, who are concentrated in Utah, had to read Sam's blog, this one or the Jr. Deputy Accountant to find out what really happened yesterday, thanks to the sheer cowardice of the Utah media.

The Deseret News picked up an AP rewrite of the press release. (The puff piece followed a few days later.) Neither the AP in its two articles nor the Trib article today mention that Overstock's fourth-quarter 2008 "profit," trumpeted by Byrne at the time in a gloating press release-- pumping up the shares by 21%-- was a big phony. It was, as restated yesterday, a loss. The brief Deseret News item doesn't even mention the restatements.

The Trib makes no mention of how it trumped the fourth-quarter 2008 "profit" in this article by the same reporter, which turned out to be a load of hooey.

Instead, the Trib quotes Overstock president Jonathan Johnson uttering this drivel: "When you look at what this restatement is really, it is positive."

Positive? Overstock admitting that its profit was a loss is a "positive"? Indeed, reading the Trib article, you'd think that the restatements were a triumph and not an admission of incompetence at best or, more likely, intentional fraud.

Nor does the Trib or Deseret News point out that California law enforcement authorities want either $8.5 million or $7.5 million from Overstock to settle a criminal investigation of its advertising practices. Both contradictory numbers are used in the 10-K released yesterday. Not only is the contradiction not mentioned in the papers' coverage, but this entire mess is not even mentioned.

Instead we get vague references in the Trib to "questions about its finances," without any mention made of the fact that those questions have been answered. Nor is it mentioned that the company's auditors at KPMG said in the 10-K yesterday that the company's internal controls were FUBAR.

Probably the worst omission in the coverage is this: neither newspapers points out that the $7.7 million profit for 2009 would have been a $6.5 million loss were it not for (as Sam points out):

• Gain from extinguishment of debt (Consolidated Statement of Cash Flows): $2.8 million
• Gain from settlements of legal matters (Footnote 16: Commitments and Contingencies): $7.1 million
• Reduction of sales return allowances $4.3 million (Page F-16)
• Total: $14.2 million

This is not the first time the Utah media has failed to do its job, or been used by Overstock to mislead its shareholders. Byrne and Johnson were quoted by the Tribune in November 2009 misstating the magnitude of the financial problem that it corrected yesterday. Johnson was quoted as saying as follows:

Johnson said the company believes its 2008 year-end financial statement was accurate and that its accounting firm at that time, PriceWaterhouseCooper, agreed and signed off. . . .

"None of these changes that they [Grant Thornton] are talking about, or that people at the SEC are now asking about, make any of our quarters go from negative to positive or from positive to negative," he said.

Byrne said much the same thing in a conference call with analysts.

There's no mention of any of this in the Trib's article, even though the same reporter wrote both articles. It's almost as if the Trib was covering up for the fact that it was used by Overstock.com to spin the dreadful condition of the company.

Now, we can't expect reporters to be accountants. But we do expect reporters to call accountants when confronted with companies that have a history of making false or misleading statements--particularly to their own newspapers.

The lesson for Utah's newspapers, and other newspapers in similar situations, is Journalism 101: Call an expert. Read the 10-Ks. Sure, you had to go to page F-53 of the 10-K to read about just how significant the 4Q 2008 restatement was -- and how much the company had lied in the past. Given the company's history of lies, evasions and misstatements, what else could they expect? Relying on the press release of a company like Overstock is simply inept.

Years ago you had to pay document retrieval services big bucks to get SEC filings. Now they're on the web, instantaneously. Sure these are big documents. So? If you can't figure them out, there are people who can do so.

The bottom line is that there is no excuse for incompetence nowadays in covering corporate slimeballs like Overstock.com. All it takes is Internet access, a telephone, and something lacking in Salt Lake City's media--a little backbone.

Yes, it's true, the company has a history of smearing the media and whistleblowers like Sam, and there's no doubt at all that Byrne will sic his hired thug, the kiddie stalker and possible pederast Judd Bagley, on any Utah reporter who doesn't toe the company line. Bagley once got in touch with Sam's estranged wife to dig up dirt on him --I mean, the guy will stop at nothing. To quote Barry Rithholtz, he is a "career douchebag." Harassing reporters is his job. He belongs in jail, but meanwhile he's on the loose, and he is doing a great job--just read the Salt Lake City papers today and you can see what I mean.

The journalistic malfeasance in Utah is understandable--but not excusable.

UPDATE: The AP's Paul Foy moved on the wire this atrocious article today, containing the following whopper from Byrne:

Byrne, who owns nearly 30 percent of the company's shares, says Overstock's accounting errors were generally conservative. The latest involved 0.1 percent of revenue and gave the company no advantage, he said.

Seems to me that a profit that really was a loss is an "advantage."

What makes this odd is that Foy knew that Byrne was dissembling. It's in the 10-K that the restatement had changed the fourth quarter 2008 gain to a loss, and Sam tells me he pointed that out to Foy, by phone and in writing.

More on the AP's messed-up reporting can be found in this follow-up.

Also, the Going Concern accounting blog weighs in.

Going Concern also live-blogged the Overstock conference call on Monday. Always a great show.

© 2010 Gary Weiss. All rights reserved.

Can Overstock.com Get the SEC Off Its Back?

Utah Senator Bob Bennett with his favorite constituent

Going Concern today has a post describing the winners and losers in Overstock.com's admission last week that its financial statements going back to 2008 were as phony as a six-dollar bill--thereby vindicating whistleblower and blogger Sam Antar.

Sam and other Overstock critics and media people, including myself, had been viciously attacked by its nutty CEO Patrick Byrne and his toady Judd Bagley--a possible pederast employed by Byrne to stalk wives and kiddies as well as the people actually criticizing the company. And that brings me to the part of GC's post today which I found the most interesting.

Under the category of "jury is out," the respected accounting blog says as follows:

SEC: Everyone know that the Commission doesn’t have the best track record of late. They have managed to be the laughingstock of the entire bureaucracy and despite a lot of huffing and puffing about new divisions and putting together a dream team of enforcement and financial experts, we haven’t seen much for results. Overstock may be a chance to show everyone that they’re done taking shit and that they are going to start smacking companies around.

Indeed, and the question is whether the SEC will let itself be bulldozed, again, by this well-heeled and determined bunch of crooks.

Byrne took the humiliating step of announcing restatement of its financials--and promising to fix its accounting--in the hope of heading off serious penalties from the SEC, which is investigating Overstock's accounting and, ahem, undisclosed "other issues." The company, I'm sure, would love to get the SEC to simply shrug and say "no problem" as it did two years ago, in concluding a probe of the same issues.

I'm sure that Byrne is intensely employing his trust fund (he is the son of billionaire GEICO ex-CEO John J. Byrne) in pursuit of that goal. He and his clan are the largest campaign contributors in Utah, and he has a particularly close relationship with the ultra-right Utah Sen. Robert Bennett. He has a phalanx of lawyers and lobbyists in Washington to do his bidding.

Bennett can't swing quite as much weight as he did when Republicans controlled the administration, but a senator is a senator.

I'm sure that Byrne, Bennett and his Washington suits will claim that it was all unintentional--that he didn't mean to create a cookie jar reserve. It was all an accident! Just the way Bagley is claiming on message boards now that it was all an accident, he didn't mean to stalk wives and kids as part of his work for Byrne. He just accidentally stole someone's photo, accidentally made up a phony identity and accidentally engaged in pretexting on Facebook by mistake. Someone really has to instruct the kiddie stalker that sometimes silence is golden.

Will these excuses work? I imagine they're hoping for either a total exoneration or the kind of easy treatment that was meted out to crooks in the Cox years, such as when Navistar got a wrist slap under similar circumstances--though its auditor Deloitte was targeted as well.

The problem, of course, is that the evidence of intent to commit fraud is overwhelming.

Byrne went on a widely publicized accountant-firing spree when confronted with the need to restate his financials, and then lied publicly about his dealings with his former auditors, Grant Thornton--to the point of being publicly contradicted by GT.

Another problem is that, as Sam has documented over the years on his blog, these were not minor accounting goofs. Overstock committed blatant GAAP and securities law violations, and they were timed in such a way as to boost Overstock share prices. (Such as by, for instance, claiming a fourth quarter 2008 profit that was actually a loss.)

Byrne, his top execs, and members of the Overstock audit committee were made aware of everything they were doing wrong, in real time. Sam's correspondence with Overstock, and the company's retaliation and smear campaign was carefully documented by Sam over the years, and made public on his blog.

For example, here is the first paragraph of Sam's blog on the fourth quarter book-cooking:

Last Friday, Overstock.com (NASDAQ: OSTK) reported a fourth quarter 2008 net profit of $1 million dollars. CEO Patrick Byrne proudly told investors, "After a tough three years, returning to GAAP profitability is a relief." However, Overstock.com's "returning to GAAP profitability" was simply accomplished by the company violating GAAP through its failure to restate prior period financial reports effected by a certain accounting error. Had Overstock.com properly followed acounting rules, it would have reported an $800,000 loss instead of a $1 million profit.

It's hard to find a more simple example of a company seeking to deceive investors in so blatant a manner. Accounting bloggerStacie Kitts observes: "Here is a lesson on making yourself an easy target, lie to the SEC and then file a lawsuit where your internal company documents will expose the lie. DUH"

Overstock's response--the vicious personal attacks on Sam--were proof of intent to commit fraud. As I pointed out in an April 2009 blog post for Portfolio.com, Byrne's minion Bagley (right) engaged in an all-out whispering campaign on his Deep Capture website against Sam, to the point of contacting his estranged wife (who rebuffed him) and attempting to dig up dirt on his divorce.

Bagley is ostensibly focusing on the "crime of naked short selling," but his assault on Sam belies that, proving that his focus is on critics of his boss. Sam has no interest in naked shorting, only in exposing crooks like Byrne.

Byrne himself makes no bones about his ownership of Deep Capture. Indeed, note this blog post today. Accounting blogger Stacie Kitts had said Byrne was "a purported owner of a website called Deepcapture.com.” Byrne's response (accompanying a link to an attack on Sam): "there's nothing purported about it."

This is part of a pattern of issuer retaliation going back years. If the SEC wants to make an example of Overstock on that issue, it can pursue a case under Sarbanes-Oxley, which requires companies to disclose waivers to their ethics rules.

Another factor the SEC can't ignore is the pattern of false statements made by Byrne and his minions on this and other issues, but particularly concerning his accounting. Only just the other day, Overstock president Jonathan Johnson gave an absurdly misleading account of the departure of a key financial executive to the Salt Lake Tribune. Byrne also also ignored Regulation Fair Disclosure on numerous occasions, using limited readership message boards to leak out corporate news. But that's like spitting on the sidewalk compared to everything else he's done.

And then, of course, there are the issues--such as the sales tax avoidance scheme and absence of internal controls--highlighted in a recent article in the Big Money. Can Bennett convince the SEC to ignore that?

The SEC can, and should, require that Byrne and the Overstock officials responsible for this mess step down and never become public officers of another company. While so doing, they may want to look at the executive compensation handed out. While the "humble servant" was too rich to draw pay--this was just a hobby for him anyway--other Overstock execs got jaw-dropping compensation packages. The SEC has required corporate execs to cough up their ill-gotten pay under similar circumstances.

Securities lawyer Howard Sirota observes in his blog:

Worse yet, the SEC has subpoenaed the Rocker litigants [the supposed source of the Big Money article] for the documents produced in discovery in Overstock.com’s lawsuit against Rocker et al. No confidentiality order in the prior civil case can immunize these documents from production to the SEC; by definition they were produced in discovery to the adverse party and so are not privileged. This expanded SEC inquiry coincided with Overstock.com’s firing of Grant Thornton in an acrimonious dispute, the engagement of KPMG, and the third restatement in three years as Overstock.com was forced to restate 2008-2009.

The expanded SEC inquiry is highly likely to bear fruit since the very first leaked documents immediately led to the ex-CFO resigning and Overstock.com filing that its prior financials cannot be relied upon. The SEC is highly likely to bring an enforcement proceeding against Overstock.com and certain officers regarding false financial statements and false Sarbanes-Oxley certifications.

In a filing just yesterday, Overstock had the gall to announce huge salary increases and bonus payments for the top officers of the company. Compare with the numbers announced in the 2009 proxy, and you can see that Johnson's base pay went from $250,000 to $350,000, and he got a $225,000 bonus for the terrific job he did helping Byrne run this company into the ground.

CFO Steve Chestnut, who aided Byrne in showing how you can turn dry financial statements into material for standup comics, saw his base pay climb from 200K to $300,000--yup, a 50% salary increase for this dude--plus a 180K bonus. All also got the usual restricted stock grants, including the humble servant.

If that's not a wad of spittle in the face of the SEC, I don't know what is. What it indicates is that if the feds don't take action, a company that openly violates the securities laws--and compensates its execs handsomely for doing so--will get away scot free.

© 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.

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.

Jonathan Johnson's $957,000 Payday

Is there any form of sleaze that Overstock.com doesn't engage in?

That was my reaction to reading the latest Sam Antar blog item, discussing, among other things, the $957,000 windfall enjoyed by Overstock general counsel Jonathan E. Johnson, who lied as if it was going out of style in a Wired interview and at the Overstock conference call.

After lying his head off about everything from GAAP to the SEC's posture on its accounting, Johnson then cashed in:

On April 23 and 24, 2008, in the two days following the latest lies by Overstock.com’s management team, Jonathan Johnson unloaded 55,922 Overstock.com common shares and pocketed gross proceeds totaling about $957,000 (Source: SEC Form 4 – here and here). In the months prior to Jonathan Johnson’s stock sales, Overstock.com repurchased 1.1 million shares at an average price of $10.90. Afterwards, Jonathan Johnson sold his shares at an average price of $17.13 per share or $6.23 higher than Overstock.com’s cost of buying back shares. The company still intends to spend another $8 million to buyback shares. Therefore, you have a lethal combination of false and misleading disclosures combined with the company simultaneously buying back shares to boost the market price of its common stock, while a key insider is selling.

The sleaze machine keeps rolling on. . .

© 2008 Gary Weiss. All rights reserved.