On Barry Minkow, Patrick Byrne and Sue-ers

My latest Street.com column deals with Barry Minkow capsizing, the latest blogger lawsuit, and the latest retchings from the serial retcher, Patrick Byrne of Overstock.com.

You can read it here.

The blogger lawsuit involves something called Deer Consumer Products and a blogger named Arthur Little, both of whom are unfamiliar to me.

In the column I point out how nice it is when crooked CEOs go straight, since so few do. What I wonder is whether Byrne will ever go straight, and if so, what will he be: a Barry Minkow who remained a crook, or a Sam Antar who has genuinely turned over a new leaf.

I have a hunch, but I'll keep it to myself.

© 2011 Gary Weiss. All rights reserved.

Patrick Byrne Dumps His Overstocked Overstock Shares

Overstock.com's wack-a-doo CEO, Patrick Byrne, has apparently found a new kind of crud to foist on the his ever-suffering shareholder base--$3.1 million in Overstock.com shares.

White collar crime fighter Sam Antar has an analysis today of Byrne's dumping of the shares, which were shed by Byrne's wholly-owned hedge fund, High Plains Investments LLC.

Barry Ritholtz points out today that he owns shares in the company -- an example, I suggest, of the downside of quantitative investment strategies -- even though "I personally think it is a steaming pile of shit, that the CEO is an asshole, and that the entire company is probably corrupt."

He has some thoughts on the sale:

Is Byrne in possession of material insider information? Would he be so stupid as to sell the shares? (I doubt anyone could be that dumb).

Perhaps he sees a favorable outcome to the SEC investigation? Maybe he is raising money to pay a fine?

A favorable outcome of the SEC investigation is entirely possible. The agency, despite all the much-ballyhooed changes in its enforcement division, has retained the mantle of uselessness that it earned under Chris Cox and his predecessors. The Allied Capital fiasco certainly proved that. The question is whether Byrne's political connections and ex-SEC lawyers can prevent him from being penalized to the extent that he deserves.

Sam today provides a good review of the company's history of seeking to silence critics of its accounting -- which, of course, would make nonsense of any claim by the company that its serial book-cooking was "unintentional."

That would be obvious to any intelligent observer, which is why I have little hope that it will persuade the SEC. Still, the SEC pursued an enforcement action against Goldman Sachs when it was least expected, so perhaps another "man bites dog" moment is in the offing. Don't count on it.

© 2010 Gary Weiss. All rights reserved.

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.

Did the SEC Give Overstock.com the 'Allied Capital Treatment'?

The Washington Post had a great article yesterday describing a recently released -- if heavily redacted -- report by the SEC Inspector General David Kotz, describing how the SEC flubbed an investigation of a company called Allied Capital, instead turning its guns on short-seller David Einhorn, who had blown the whistle.

Allied filed for bankruptcy in October 2008, but not before Einhorn was the subject of a smear campaign by Overstock.com CEO Patrick Byrne's "Deep Capture" website. Byrne claimed that Allied was among the terrific companies (including Overstock, natch, but also including innocent companies like Bear Stearns and Lehman Brothers) that were "attacked" by horrid people like Einhorn.

The parallels between Allied and Overstock are startling:

• Both were probed for accounting irregularities at the instigation of short-sellers.

• Both managed instead to get critics investigated--Einhorn in the case of Allied, Gradient Analytics in the case of Overstock.
  

• Both were the subject of favorable treatment by the SEC, Allied getting a no-penalty wrist slap and the Overstock probe dropped entirely by Chris Cox's SEC, only to be renewed after the change in administration. Allied also got a pass for unlawfully gaining access to Einhorn's phone records, and probably doing the same thing to Herb Greenberg.
  

• Both engaged in issuer retaliation, including a campaign against Einhorn by Allied and Byrne's smear campaign against whistleblower Sam Antar, conducted by Byrne's employee Judd Bagley (right), a possible pederast noted recently for stalking the kids and spouses of Byrne's critics.
  

• Both were guilty as hell. Allied eventually succumbed to its own sliminess, and Overstock, under renewed SEC investigation, has recently admitted that its financial statements were completely fatuous. Antar's analysis of Overstock's accounting was completely vindicated.
  

The Post article focused on the SEC's malfeasance, including the excessive deference the SEC granted former SEC lawyers in the employ of Allied. The Post article notes that "Among other things, Kotz questions how SEC officials decide to open investigations and whether they are unduly influenced by outside lawyers -- particularly former SEC officials -- in conducting the probes."

It's not entirely clear if that's another commonality, though Overstock had on its payroll at least one ex-SEC lawyer, a proud lawyer for stock market thieves named Brent Baker. He worked for Overstock from 2004 until joining a Salt Lake City law firm in August 2006, and was at Overstock at the same time the SEC was probing critics of Overstock and subpoenaing reporters Herb Greenberg (also targeted by Allied) and Carol Remond, who had written critically of the company. The subpoeanas were later withdrawn.

As Joe Nocera observed in the New York Times at about the time those subpoenas were issued, Byrne sent Greenberg a gloating email three days before the subpoenas were issued. That stinks to high heaven. How did Byrne find out about the subpoenas?

Baker once belched forth the following creepy sentiments in his now-deleted blog "sectales.com," responding to a comment I once had made about issuer retaliation:

Guess what? Patrick and the DeepCapture folks are all correct. I saw it from within the belly of the beast and I can honestly tell you that "bent journalists" are more of a problem for our capital markets than "retailating issuers." Give me a break.

The SEC inspector general needs to explore the role that this character had in the whole Overstock mess.

David Einhorn wants the full, unredacted Inspector General report issued, but that's just a small part of what the SEC needs to do. In addition to finally taking action against Overstock for its in-your-face accounting violations, Kotz needs to thoroughly explore the SEC's conduct toward Overstock, and the dynamics that led to the abortive subpoenas being issued and the Overstock probe dropped.

The SEC needs to shut the revolving door that puts ex-SEC lawyers on the payroll of SEC targets as soon as they leave the employment of the agency. That makes the SEC less of an enforcement agency as it is a kind of training camp for the likes of Brent Baker, who make a fortune after they leave the SEC by working for the people they used to probe.

Byrne has withdrawn himself and his cronies from their usual cyberstalking duties for the past few weeks, because of what I presume are intense negotiations with the SEC over the firm's fate.

It will be interesting to see if the SEC takes a dive--again.

© 2010 Gary Weiss. All rights reserved.

The Problem With Overstock.com's Latest Problem

Byrne: Tried to pull a fast one in his SEC filing

In my blog item yesterday about the corporate street thugs at Overstock.com, I pointed out that that there was a problem with the "notice of late filing" that these child-stalking douche bags quietly slipped into the SEC's files a few minutes before deadline.

Leave it to Overstock.com to have a problem with a problem. Of course, to use the word "problem" in the same sentence with "Overstock.com" is a bit of an oxymoron in itself. Well, as promised, here's the problem with the problem: It lies.

Hey, they don't call Overstock.com's financial statements the "Quarterly Lie" for nothing. Today's installment, described in Sam Antar's blog this morning, is that Overstock slipped in "new previously undisclosed material violations of Generally Accepted Accounting Principles (GAAP) and other Securities and Exchange Commission disclosure rules."

The problem is that Overstock specifically says these were not previously undisclosed issues.

If you turn to "Part III - Narrative," Overstock's chief can't-count-to-save-his-life officer, Stephen J. Chestnut, recounts a bunch of "errors" that need to be fixed before these geniuses can file their 10-K for 2009. Chestnut prefaces this list of goofs by saying, very nonchalantly, "As announced on January 29, 2010, Overstock.com, Inc. . . "

He then goes on to list some serious GAAP and disclosure issues that weren't announced on Jan. 29.

Overstock.com's wack-a-do CEO Patrick Byrne has been hiding under his desk while all this is going on, dodging a demand by Sam Antar that he apologize for lying about Sam correctly identifying Overstock's fraudulent accounting.

Not only that, but Byrne attacks Sam on the Overstock website, as Sam describes in his blog today.

That's a pretty clear case of issuer retaliation. I wonder if the SEC will wake up long enough to take action against these hoodlums? Banning its management from ever coming within 500 feet of a public company would be a good start.

UPDATE: Barry Ritholtz and Jr. Deputy Accountant weigh in. Love that graphic.

© 2010 Gary Weiss. All rights reserved.

How Patrick Byrne Can Apologize to a Whistleblower

The Going Concern blog today has an amusing item describing how Overstock.com CEO Patrick Byrne can apologize to Sam Antar--the convicted felon and former Crazy Eddie scam mastermind whose sharp analysis of Overstock.com's fraudulent financials has been vindicated.

The accounting blog has three suggestions, among them:

Overstock.com gift cards – Nothing says I’m sorry like free stuff that the aggrieved party can pick themselves. Bonus, the overhead on Byrne’s own inventory must be low. You know, because it’s his, not because there is any monkey business going down on OSTK’s financials.

To me, an even better gift would be a candygram--containing a truthful answer to the following email, which Sam sent Byrne the other day:

from Sam E. Antar
to PByrne@overstock.com
cc:
jtabacco@bermanesq.com
date Tue, Mar 9, 2010 at 2:12 PM
subject FW: Overstock.com Restatement

To Patrick M. Byrne:

Having not received a response from last night’s email (see below), I am asking for a response to the following question I asked you in that email:

Will you finally admit that I was correct when I reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?

In addition, I have the following questions:

Will you finally admit that I was correct when I reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures?

Will you publicly admit that I was right about Overstock.com’s violations of GAAP and other SEC disclosure rules (such as Regulation G)?

Will you publicly admit that you were wrong when you claimed that the company was complying with GAAP and other SEC disclosure rules, while at the same time you were publicly defaming me and other critics?

Will the company admit that I notified audit committee member Joseph J. Tabacco about Overstock.com’s GAAP and SEC disclosure violations (such as Regulation G) and continued to issue improper financial reports until it was forced to make corrections in its financial reporting?

As the CEO of Overstock.com you owe me a public apology.

Respectfully,

Sam E. Antar

The ordinarily voluble Byrne hasn't responded. As the Gipper used to say, he can run, but he can't hide.

© 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.

Patrick Byrne Repeats 'Eagle Scout Defense' to SEC Investigation

Patrick Byrne's nemesis featured in Crain's

Crain's New York Business today has a terrific cover story on white collar crime fighter Sam Antar, online here (subscription or free trial required). It's filled with terrific nuggets of information, one of the most interesting of which is that Overstock.com CEO Patrick Byrne repeats, word-for-word, what is shaping up to be Overstock's lame defense of its accounting irregularities: the "Eagle Scout defense."

Repeating what he told the Salt Lake Tribune in an ethnic-slur-laced interview, Byrne said that his defense to the SEC investigation, which was clearly prompted by Antar's meticulous analysis of the company's accounting, is that his accountants, who he alleges would be to blame for any irregular accounting (Heaven knows, not him!) are "Eagle Scouts."

In the Tribune he said:

"Our accounting department is a bunch of square Utah Eagle Scouts," Byrne said. "Their instructions were to keep the books conservatively. In 2006, our auditors said we were being too conservative."

In Crain's he said:

“Our accounting department is a bunch of square Mormon eagle scouts, and their orders are to be as straitlaced as possible,” he says.

Putting aside the inappropriate and patronizing reference to his accountants' alleged religion--this guy is really hung up on people's religion, isn't he?--it's striking how Byrne is trying to shift blame to underling, faceless "accountants."

The problem is that it won't wash.

Thanks to a little-enforced post-Enron law known as "Sarbanes-Oxley," Byrne, not faceless "Eagle Scouts" wearing eyeshades, is personally responsible for Overstock's financial statements and signs off on them, attesting to their truthfulness--something designed to prevent precisely this kind of blame-shifting to "the Mormons in our accounting department."

CFO Steve Chestnut also has to place his John Hancock on the financial statements with a Sarbox attestation--scouting merit badges and religious affiliation notwithstanding.

It's also sheer bull. Ever since he started examining Overstock's finances in early 2007, Sam Antar has been telling Byrne, in both blog postings and emails, that his accounting has not been in accordance with Generally Accepted Accounting Principles. Sam has detailed how Byrne created a "cookie jar reserve" that he has been using to minimize losses and create a long-promised fourth quarter "profit" that was actually a loss.

Byrne has acknowledged seeing Antar's emails and posts from day one, and has responded by mocking Sam, attacking him on his conference calls, and siccing his nauseating Internet stalker, Judd Bagley, to smear him on the Internet. Bagley has stalk him pretty much everywhere, contacting his estranged wife, and even turned up to attack Sam at the NPR website, when Sam gave an interview not mentioning Overstock at all.

Unless the SEC decides to take a dive, again, and ignore Byrne's falsifying of financial statements, Byrne is going to find it hard to evade responsibility by blaming his crookedness on unnamed "Mormons."

I have a sneaking suspicion that we're going to see a lot more Yiddish curses and LDS-blame-shifting from this character in the months ahead. Byrne's mummy and daddy really need to talk with him (maybe when they send him the monthly trust fund check) about talking about people's religion. It tends to... no, on second thought, better not say anything.

© 2009 Gary Weiss. All rights reserved.

Patrick Byrne Fails to Celebrate New SEC Investigation of Overstock.com

Vindication for Sam Antar, whom Overstock has tried to silence

Overstock.com CEO Patrick Byrne famously issued a thumb-your-nose press release to the SEC in 2006, when the company's records were subpoenaed in an SEC investigation of its accounting. Byrne said he "celebrated" the subpoena and he had every right to do so: the inert Bush administration SEC chairman, Chris Cox, was in the process of raping the SEC enforcement division, as a prelude to its inept performance on Madoff and the financial crisis.

Byrne had every reason to believe that nothing would come of it, and he was right.

Today, Byrne seemed downright peeved in reaction to yet another SEC subpoena, and a new SEC investigation of the company's smoke-and-mirrors accounting. In a press release issued after the market close, Overstock disclosed:

. . . it has received a notice dated September 15, 2009 from the Securities and Exchange Commission stating that the Commission is conducting an investigation concerning Overstock's previously-announced restatements of its financial statements in 2006 and 2008 and other matters. The subpoena accompanying the notice covers documents related to the restatements and also to Overstock's billings to its partners in the fourth quarter of 2008 and related collections, and Overstock's accounting for and implementation of software relating to its accounting for customer refunds and credits, including offsets to partners, and related matters.

Byrne's reaction was pained: "All of the matters that are the subject of the subpoena have been thoroughly disclosed and we are disappointed, given the extensive public disclosures Overstock has previously made, that the SEC, given all of the challenges it faces, has apparently chosen to expend time and resources on another investigation of Overstock," said Overstock.com Chairman and CEO Patrick Byrne.

No "yipikaye" today.

Byrne goes on to stoutly declare that he "will continue to speak out as I have on the shortcomings of our financial regulatory system." Such as its failure to go after CEOs who manipulate their financial statements, like him?

What makes this latest SEC probe especially painful for Byrne is that this is a total vindication for white collar crime-fighter Sam Antar, who has repeatedly pointed out the shortcomings in Overstock's financials, particularly concerning its restatements.

I've said several times that Sam has given the SEC a "roadmap" of the dreadful accounting at this corporate crime petri dish. Apparently the agency is finally using it.

Now, the question is, does Byrne have reason for optimism this time? Will his political clout work again? Will his family's domination of the purse strings of the Utah Republican Party pay dividends again, and will the SEC's supposedly reinvigorated enforcement division do what it did last time--and take a dive?

Some other things I'll be curious to know:

Will the air-heads who lob softball questions at Byrne in cable and Internet interviews dare to ask him about any of this, or will they continue to ask him on how to run a terrific (if insolvent) internet retailer?

Will Byrne sic his paid hood, the nauseating Judd Bagley, to stalk Antar again when he gives a radio interview on another subject?

The only thing that disappoints me is that the SEC probe doesn't appear to encompass Overstock's vicious campaign of issuer retaliation. But then again, it might be, just not mentioned in the subpoena. (It's not as if victims have been uncooperative, after all.)

Stay tuned.

UPDATE: Just to clarify something I didn't make very clear, and which wouldn't be obvious if you don't wade through Sam's posts: why are the restatements important? Because they were done in such a way as to turn a loss into a profit. That's a material misstatement, folks.

Sam described the book-cooking process in detail in a this post.

All this "restatement" and "cooke jar reserve" stuff sounds complex, but it really boils down to something simple: Overstock is losing money, and is pretending to be making money. The word for this is "stock fraud."

Byrne is too rich to draw a salary at Overstock, so it is something of a rich-kid hobby for him, but he still has to obey the law.

I hope that if the SEC decides to actually enforce the law against Overstock, for a change, that it take another step that has rarely taken: referring this to federal prosecutors.

© 2009 Gary Weiss. All rights reserved.

Patrick Byrne Employee Stalks Critic on NPR

Patrick Byrne's shill Bagley gives NPR a taste of what it's like

 UPDATE: Judd Bagley copped a plea to eight drug felonies in April 2013. See "Closing the File on a Criminal and Junkie Named Judd Bagley," March 30, 2015.

White collar crime-fighter Sam Antar, who masterminded the Crazy Eddie stock swindle and now fights his former ilk, has been all over the media lately. He was interviewed by National Public Radio recently and was then the subject of an NPR.com blog post entitled, "Inside The Mind Of A Financial Criminal."

Sam has long since mended his ways and now fights financial crime. So who turns up in the comments but a genuine, active stock market miscreant, Judd Bagley, who is paid by Overstock.com's wacky CEO Patrick Byrne to harass his critics. Sam has been a persistent critic of Overstock's accounting and of Byrne's behavior, including his employment of Bagley.

Bagley posted a comment falsely accusing Sam of being a "current stock manipulator." Nowhere in his post does he disclose that he is employed by one of Sam's target's, or that he was Overstock.com's p.r. director until recently and is now employed directly by Byrne to do stuff like post nasty comments about critics of his boss.

Talk about stock manipulation. That smells like it to me. NPR deleted the post, though its shadow remains on the site.

Bagley posted his trash again and it was deleted again. Hey, that's how he makes his living.

But he didn't give up. This guy works hard for his salary. He then vented his frustrations on a stock message board, calling for his fellow stock pumpers to descend upon the NPR message board.

Why all the expenditure of energy?

Sam has been actively exposing Overstock's cheesy accounting, and recent posts have shown that Overstock has only been able to generate a slim "profit" by using smoke-and-mirrors card tricks that violate Generally Accepted Accounting Principles.

Overstock has fought back, not by addressing Sam's points but by unleashing this creepy, amoral nightcrawler, a former flack for a Jeb Bush commissioner who specialized in personally attacking reporters in Florida.

Sam didn't utter a word about Overstock, Byrne or the nauseating Bagley in his broadcast report. This was purely a case of gratuitous (and repeated) character assassination on the part of someone who makes his living by doing so.

Overstock has a market capitalization of about $290 million, which isn't bad at all for a company with a breathtakingly inept CEO, has a negative net worth, and has burned through all of its capital. You have to wonder, how much of this market cap is attributable to Byrne silencing his critics through tactics like this?

UPDATE: Byrne, taking a break from running his company into the ground, weighed in on the NPR message board. His comment was promptly deleted. I wonder if the media dummies who give this guy a platform are aware of the kind of nut he is. Are memories that short?

© 2009 Gary Weiss. All rights reserved.

Overstock.com: More Roadmaps for Regulators to Ignore

It's now becoming clear why, out of the blue, Overstock.com's ditsy CEO Patrick Byrne is on a cyberstalking frenzy, unleashing his hireling Judd Bagley on the usual suspects (mainly me): Byrne is, as usual, cooking the books to manufacture phantom profits.

It's all in an "Open Letter to Mary Schapiro" posted today by white collar crime fighter Sam Antar.

As usual it's all spelled out, a road map for regulators, if they have the guts to take on Byrne. Which they don't.

I can understand if Sam feels frustrated that his campaign to expose the accounting gimmickry at Overstock has resulted in absolutely nothing so far. But frankly I am not surprised, as the SEC's uselessness has been proven time and again. Under Schapiro, the agency has been engaged in a protracted struggle for survival, at a time when Treasury Secretary Tim Geithner plans to eat the SEC's lunch with a new consumer protection agency.

More and more, Schapiro's tenure at the SEC is reminding me of her term as president of NASD Regulation, which began in 1996 at the height of the microcap fraud era. At the time, her main job was generating press releases, while the "chop houses" continued their ripoffs unaffected. It took the FBI to shut down the crooked brokerages.

Similarly, you can't expect Mary Schapiro's SEC to actually enforce the law against Overstock. There's too much political pressure being brought to bear, too many ex-SEC lawyers working hard to keep Overstock and Byrne from being sanctioned. The media doesn't care, because "Byrne is cooking the books" is, like "Byrne is a nut," an old story, and outside of Salt Lake City nobody cares. Only Fox puts him on the air, and I don't know how long that is going to continue after a debacle like this interview.

Frauds don't continue forever, and Overstock's cash reserves are being depleted. While Sam is right that Byrne produced an accounting "piggy bank" to inflate his earnings, the actual piggy bank is getting lighter and lighter. That can't continue forever.

© 2009 Gary Weiss. All rights reserved.

Yet Another Road Map for Regulators

Will the SEC revoke Byrne's "Get Out of Jail Free" card?

I've used the expression "road map for regulators" at least twice in describing how white collar crime-fighter Sam Antar has exposed the phony accounting used by the corporate crime petri dish Overstock.com. Sam's latest post this morning describes the latest sleight of hand CEO Patrick Byrne has used to juggle the numbers.

Sam lays out in detail how Byrne was only able to report a "profit" in the most recent quarter, which sent share prices climbing, by violating Generally Accepted Accounting Principles and other smoke and mirrors.

As William Wolfrum points out, Byrne has had a busy week, trolling Internet message boards and unleashing his attack dog Judd Bagley on critics. As usual. But "the real story is in the financial reports," as Wolfrum points out. The rest is just icing on the cake.

As usual, the question is whether the SEC will take action, or continue to give Byrne a "get out of jail free" card that he uses every fiscal quarter.

There. Two metaphors for the price of one.

© 2009 Gary Weiss. All rights reserved.

Where Was the Press While an Analyst Was Being Crushed?

Gretchen Morgenson today has a great column in the New York Times today on the successful effort to crush an independent analyst by Matrixx Initiatives, the criticism-phobic pharmaceutical company whose OTC cold products were recently ordered recalled by the FDA.

Reading her column got me to thinking: all this occurred some years ago. Where were the media while it was happening?

Gretchen focuses on the company's legal war against Tim Mulligan, editor of the Eyeshade Report newsletter, which drove him out of business. Her account of Mulligan's encounters with the SEC is startling, even to those of us accustomed to SEC passivity on corporate transgressions and--in this case--blatant issuer retaliation:

In addition to his dismay over the legal battle, Mr. Mulligan said he was perplexed by encounters with S.E.C. officials regarding Matrixx. Amid his legal wrangle, he contacted two S.E.C. enforcement officials offering his research about the company. They dismissed him as “suspicious,” Mr. Mulligan said, and refused to provide e-mail addresses to which he could send his work.

In April 2004, he wrote a letter to William H. Donaldson, then the chairman of the commission, about the hostility that he had met. “In my humble opinion, your agency’s purpose would be better served by being more open to outside information,” he wrote.

Writing a letter to the do-nothing Donaldson was, of course, about as useful to his cause as taking the letter and flushing it down the toilet.

Morgenson concludes:

To be sure, Mr. Mulligan’s encounters with the S.E.C. occurred five years ago. But the officials’ dismissal of him doesn’t appear to have been an anomaly — just think of the warnings that were ignored on Madoff.

Perhaps under its new leadership, S.E.C. officials will be more welcoming to independent financial sleuths. Given how outgunned it is by Wall Street and corporate America, surely the commission can use all the help it can get.

No, it certainly wasn't an anomaly. Readers of this blog have learned, in realtime, how white collar crime fighter Sam Antar has repeatedly blown the whistle on misleading accounting at the corporate crime petri dish Overstock.com, only to be ignored by the SEC.

Articles like Gretchen's are welcome, but they are the exception to the rule. Whistleblower warnings tend to be disregarded by the media--as they were in the case of Madoff whistleblower Harry Markopolos--and Antar's detailed dissection of Overstock accounting has been similarly ignored by the press, which instead prefers to print puff pieces generated by Byrne's new p.r. firm, such as this rubbish today in the Boston Globe.

The media, unfortunately, can sometimes exceed the regulatory agencies in laziness and irresponsibility. Except for a Joe Nocera column a couple of years ago, Matrixx's battle with Mulligan received only sporadic coverage in the press, mainly small articles on hiccups in the legal battle.

There's been some coverage by Nocera and others of Overstock's vicious campaign to intimidate its critics, which recently included dispatching a hireling named Judd Bagley to contact Antar's estranged wife. Byrne has sicced his hoods on reporters who dare to describe his activities in less than flattering terms, and Sam's accounting analysis--such as his finding that a fourth quarter profit was a result of smoke and mirrors--has received virtually no coverage.

Maybe it's the intimidation campaign, or maybe simple laziness. Hell, the Boston Globe reporter who cranked out the puffy Q&A with Byrne today would have had to actually read Sam's blog, or give him a call if she didn't understand the accounting terminology involved.

Accounting watchdogs like Mulligan and Antar have an annoying tendency to be right. So when Overstock finally meets its maker, either by much-delayed SEC action or sheer weight of mounting losses, the usual postmortems can be expected. Where were the media? The answer will be "Just where they when Matrixx was hounding Tim Mulligan and Internet message board posters. Doing nothing."

Chris Byron once called the media the SEC's "seeing eye dog." But all too often the press is as apathetic as our famously lethargic regulators.

The Little Profit That Wasn't There

With great fanfare, my favorite corporate fraud poster child, Overstock.com, reported the first quarterly earnings in a dog's age. Whoopee! The "earnings" were tiny, but the shares shot up -- only to fall again, when two analysts downgraded the stock, pointing out that the company had achieved the "profit" by one time events and that revenues were way down.

Now it seems that it had no profit at all. Fraud-fighter Sam Antar points out in his blog today that Overstock only was able to report "earnings" by violating accounting rules. Its "profit" (quote, unquote) should have actually been a loss of $800,000.

Sam reported:

According to Statement of Financial Accounting Standards No. 154 and SEC Staff Accounting Bulletin No. 99, Overstock.com should have restated all prior accounting periods, rather than use a "one-time gain" to correct its accounting errors "relating to payments from partners who were under-billed earlier in the year."

As a result of violating SFAS No. 154 and SAB No. 99, Overstock.com improperly reported a Q4 2008 net profit of $1 million, instead of an $800,000 net loss.

This is the first outright Overstock fraud to take place on the watch of the new chairman, Mary Schapiro. The ball is now in her court.

Every time Antar has reported on Overstock's chicanery -- which he has done numerous times in the past -- he has been a target of a slimy smear campaign by Overstock CEO Patrick Byrne, and his vicious attack dog Judd Bagley. Byrne already engaged in a kind of preemptive strike, childishly attacking Antar during the conference call.

It's the kind of issuer retaliation and blatant Sarbanes-Oxley violations (failure to get a waiver from the corporate code of ethics) in which Byrne has engaged freely, without any interference from Chris Cox's SEC. It will be interesting to see what these two creeps will unleash on this guy, and it will be even more intereting to see if Mary Schapiro's SEC will let them get away with it -- and with Overstock's continued flouting of accounting rules.

UPDATE: Predictably, Byrne sicced a wacked-out former journalist named Mark Mitchell to attack Antar on the Deep Capture site. It is a comical rant that reads as if Mitchell was sucking an LSD cube while his sweaty hands flew over the keyboard, with cameos by Mike Milken and Bernie Madoff (a naked shorter, wouldn't you know). Screwy as it is, it's still issuer retaliation, no matter how many corporate shells Byrne may erect.

© 2009 Gary Weiss. All rights reserved.

Corporate Fraud Update, Overstock.com Department

My favorite corporate sleazebags, the management of Overstock.com, are the subject of two excellent posts over the past few days by my fellow white color crime aficionados, reformed felon-turned antifraud crusader Sam Antar and forensic accountant Tracy Coenen.

Overstock is a worthy subject for several reasons, notably (for me at least) its sustained effort to silence critics. These two latest blog posts do an excellent job at something the SEC has failed to do, which is to call this company's management to account.

Tracy's post, here, is an excellent digest of the ongoing Overstock train wreck. Sam today describes the kind of legal peril that theoretically faces the company because of its disclosure violations.

I say "theoretically" because Overstock has gotten away with murder in the face of an indifferent SEC. Let's hope that one of the things President-elect Obama will be changing is a federal securities apparatus that has given up on enforcing the securities laws.

Tracy's rundown of Overstock's long list of transgressions is worth repeating:

[One constant over the past two years] has been the criticism of fans of Patrick Byrne and Overstock. Byrne has been trying to silence his critics, and even went so far as to hire cyberstalker Judd Bagley to threaten and intimidate the company’s critics.

The fact always remained that there were inconsistencies in disclosures, unusual financial statement items, and a general appearance that management at Overstock.com was not forthcoming in its presentation of financial results. The questionable matters included:

• Claiming the company was improving, while financial measures showed a decline
• Assertions about inventory levels, quality, and reserves
• Failure to disclose a SEC subpoena of Patrick Byrne until almost a year after it was issued
• The mysterious departure of members of the Overstock.com Board of Directors
• Patrick Byrne’s tendency to spend time posting on message boards, rather than trying to run his terrible company
• Manipulation of earnings numbers in an attempt to make the business appear better than it is
• Violation of Regulation G, according to SEC guidance on EBITDA calculations
• The tendency to engage in “Black Ops” on the internet when negative financial information is around the corner
• More manipulation of earnings numbers
• More pretend conspiracies courtesy of Patrick Byrne
• Lies and questions about the company’s adherence to GAAP
• False statements about the SEC’s closure of its investigation of Overstock.com
• Repeated irregularities in the financial statements and disclosures made by Overstock.com
• Materially overstating EBITDA
• Massive losses year after year, accumulating to almost a quarter of a billion dollars by mid-2008

The critics kept writing, and now the truth comes out. Byrne and his paid stooges continuously tried to discredit the critics, claiming there was some conspiracy to take down Overstock. The truth has always been that Overstock.com is a horrible company run by an incompetent and mentally unstable CEO.

In the latest Overstock screwing of its investors, the company on Friday announced plans for yet another secondary stock offering. That's what failing companies do: when they can't sell products, they sell stock.

Clearly Overstock CEO Patrick Byrne believes investors are as dumb as he is inept, which is saying a lot. The stock sold off sharply just before the Friday announcement, indicating to me that at least some investors -- the ones with inside information -- know better than to hang on to this dog.

© 2008 Gary Weiss. All rights reserved.

Did the Utah Attorney General Succumb to a Payoff?

White-collar crime fighter Sam Antar knows crookedness from the inside, as a reformed crook himself who masterminded the Crazy Eddie stock fraud. Sam now goes around the country at his own expense to lecture law enforcement agencies, and he had the misfortune of including in his itinerary the Attorney General of Utah, long a happy hunting ground for crooks of all stripes.

I say "misfortune" because of the episode detailed by Sam in his blog here. As a Salt Lake Tribune blog put it, Sam is contending that "Utah Attorney General Mark Shurtleff is little more than an attack dog for Overstock.com's Patrick Byrne."

Yup, my favorite corporate crime poster child has an ally in the Utah attorney general, fueled by an interestingly-timed campaign contribution. Byrne, who likes to portray himself as a champion of the little guy, is the biggest campaign contributor in Utah. He likes to bully the locals, often to disastrous effect -- as when he went berserk at a meeting with Utah pols.

Seems that Byrne doesn't have to throw a tantrum to get Shurtleff's attention. Five thousand bucks will do nicely. Tracy Coenen spells out the incriminating details.

Actually Sam is doing more than throwing around allegations, since his story is backed up by what appears to be taped telephone conversations with suitably shamed members of the Utah AG's office.

Shurtleff is running for reelection in an overwhelmingly Republican state, but this is a Democratic-leaning year, and it will be interesting to see if the people of Utah react to the foul odor emanating from their highest state law enforcement officer.

© 2008 Gary Weiss. All rights reserved.

Patrick Byrne Pulls a 'Reverse Dick Nixon'

Patrick Byrne admits the obvious

Forensic accountant Tracy Coenen observes today that Overstock.com CEO Patrick Byrne has admitted what has been obvious for ages: that he is a crook.

This is a refreshing gust of honesty from the famously dissembling Byrne, who has made a second career out of hounding analysts and members of the media who call him to account for his serial lies. Unlike Dick Nixon, who famously said "I am not a crook," Byrne is forthright in admitting his crookedness.

Bravo!

She notes that Byrne said as follows in a CNBC telecast in 2004:

Well, first of all, I’m all about gap. [sic] I have been so critical of the companies that do–I don’t believe in one-time charges; I don’t believe in EBITDA. If somebody talks EBITDA, put your hand on your wallet; they’re a crook.

The "gap" in the transcript is supposed to be "GAAP" -- generally accepted accounting principles -- which Byrne has disregarded when it suits him. Tracy and Sam Antar have been hammering away at that point for some months now.

Sam Antar adds:

The double talking Patrick Byrne not only likes EBITDA, he also likes to violate Securities and Exchange Commission Regulation G and materially overstate EBITDA in Overstock.com's financial reports. My blog and Tracy Coenen’s blog have detailed Overstock.com’s SEC Regulation G violations and resulting material overstatements of EBITDA in its financial reports starting from Q2 2007 and continuing to Q1 2008.

Indeed, Byrne's latest stock-pumping conference calls have been EBITDA-love-fests. Tracy's blog has a good analysis here on how Byrne has not only "talked EBITDA" but overstated it.

Tracy concludes, "I agree with Patrick: He is a crook." I agree with him too on that point. Whenever he talks about EBITDA (or stamp collecting, or ornithology, or if it is raining outside), put your hand on your wallet. A crook is talking.

I guess it's time for the SEC to wake up from its slumber, conclude a nearly two-year-old investigation and make it unanimous.

© 2008 Gary Weiss. All rights reserved.

Patrick Byrne Caught in (Surprise Surprise) Another Lie

Stop the presses--not. The clown prince of corporate America, Overstock.com CEO Patrick Byrne, has been caught in another lie. White collar crime-fighter Sam Antar points out in his blog that Overstock's latest 10-K contradicts a statement he made on a stock message board.

As I said, don't stop the presses. It is not news by now that, as Sam states in his blog "Patrick Byrne is a bottomless pit of lies." He has even lied about his own lies, misrepresenting (see also here) his dishonest "stock counterfeiting" jihad as a warning against the subprime mess and illiquidity in the system. In fact, he and other conspiracy theorists touted a subprime lender, Novastar Financial (NFI), claiming it was a victim of "naked short-selling."

Nor is it news for him to lie about Overstock's accounting practices , even as the SEC engages in an ongoing investigation that focuses on just that.

Byrne clearly believes that his real or perceived political clout guards him against SEC sanctions stemming from his lies. It will be interesting to see if, indeed, the SEC is the "captured regulator" that he says it is.

© 2008 Gary Weiss. All rights reserved.

More Inventory Mishegas (BIDZ Edition)

White collar crime fighter Sam Antar has a fascinating blog item on possible accounting mishegas, this time at BIDZ.com.

Eric Savitz picks up on the story at the Barron's website. Savitz had previously reported that the company had previously raised a ruckus about "naked short selling," the all-purpose excuse of scuzzy companies, with or without accounting mishegas.

Speaking of mishegas (defined here), the clown prince of public companies, Patrick Byrne, is expected to belch forth a Form 10-K for Overstock.com on Monday. What merriment awaits? Stay tuned.

I note that Byrne, consistent with his policy of doing everything but strip naked in public to divert attention from his ineptness, appeared on Fox News yesterday to say that Eliot Spitzer. . . . arghh, too bad. Having technical difficulties. Guess this diversion will have to go unrecorded.

© 2008 Gary Weiss. All rights reserved.

A Hagstrom For Regulators

I believe I've used the expression "road map for regulators" more than once to describe ex-scamster Sam Antar's detailed analysis of Overstock.com's sleazy accounting practices.

So here's a different metaphor: The detailed post out today is very much in the tradition of the venerable map-maker, Hagstrom. Except that the only motorists who need follow it are investigators for the SEC.

The title says it all: "Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures." You can read it here.

I really don't have much to say beyond "read it." If, that is, you are interested in how a widely publicized company can manipulate its financial statements, right in plain view of an army of feckless brokerage house analysts and the world media.

Byrne has lately been posting on the Overstock website a warmed-over attack on former Business Week reporter Tim Mullaney, who posed a series of tough questions to Byrne two years ago. Byrne has been practically begging the media to pick up on his smears. Anything to divert attention from his shady accounting. I guess he feels that in glorying in his past victories -- he browbeat Business Week into not writing about his dreary financial results -- he can relive them.

The irony is that Mullaney's questions were right on the mark, and Byrne's replies were slippery and deceptive. Byrne also said in the exchange with Mullaney that "I think 'EBITDA' is the stupidest thing I ever heard emanate from Wall Street (no small feat)." Yet he recently trumpeted -- and inflated -- the company's EBITDA numbers.

Byrne's view of his face-off with Mullaney as a public relations triumph borders on the delusional. It established his reputation in the media as a bully and as a CEO with something to hide.

I doubt that the SEC, which is investigating Overstock and Byrne, is focusing massive resources on his "campaign of menace" (as Joe Nocera put it) against critics. Their case largely centers on accounting. Silencing critics is, I believe, largely secondary, sort of icing on the cake.

Now they have no excuses for further dilly-dallying, as the accounting issues that are evident in public statements ( Lord knows what is buried in their books and computer files) has now been laid out for them.

They've got a great road map. Time to step on the gas.

© 2007 Gary Weiss. All rights reserved.