Useless Auditors and a Persecuted Blogger

Today in TheStreet.com I have a column describing the utter uselessness of auditors--and how bloggers (specifically Sam Antar) can sometimes do a better job rooting out questionable accounting and wrongdoing at companies.

As if to prove that general point, forensic accountant Tracy Coenen today has a hilarious blog item today describing the latest developments in a junk lawsuit brought against her and others by a company called Medifast.

It's not often that you see parties describing depositions while they're in the midst of litigation, and this one makes for fascinating reading. What isn't funny is that this suit hasn't been thrown out already.

© 2010 Gary Weiss. All rights reserved.

Medifast, Meet Barbra Streisand

Ms. Streisand, I'd like you to meet another dumb lawsuit plaintiff

In an item the other day I described how a lawyer for Shaquille O'Neal, suitably named "Roach," had sent a threatening "cease and desist" letter to blogger Tim Sykes, demanding that Tim remove all refrences to a company tied in to O'Neal called NXT Nutritionals Holdings Inc.

Doing so was dumb as hell, because all the Roach did was to amplify Tim's claim that NXT is a "pump and dump"--something known as the "Streisand Effect," after an equally dumb lawsuit the singer once filed. All the suit filed by Streisand accomplished was to disseminate a photograph she was trying to suppress.

Roach was pretty dumb, but I've found someone even dumber--a company called Medifast Inc. Repeat: Medifast Inc. (just want to be sure you noticed) that is suing Barry Minkow, his Fraud Discovery Institute, forensic accounting ace Tracy Coenen and a bunch of other people, including an anonymous person on a Yahoo! message board, for saying naughty things about the poor wittle dahling mutlilevel marketer.

Here is Tracy's post on the suit, and here is a post from Sam Antar asking Medifast why it hasn't responded to the allegations that have arisen concerning the firm.

As with NXT, I have no opinion on Medifast except that a suit like this is just plain stupid. All it is going to accomplish is to disseminate Minkow's claims to people like myself who don't follow such things and ordinarily couldn't care less.

Sam points out:

The lawsuit alleges that Barry Minkow orchestrated an illegal scheme to drive down the stock price of Medifast shares to profit from short selling. However, Minkow has a first amendment right to critique or to use your words "bash" Medifast, notwithstanding the fact that he publicly disclosed that he holds a short position in your company and is a convicted felon. Minkow's opinion and analysis is backed up by very detailed reports prepared for Fraud Discovery Institute by Mr. FitzPatrick and other data made fully available to the public for examination and scrutiny.

The Defendants will certainly assert "truth" as a defense to claims of defamation made against them in this lawsuit. That same kind of truth led a federal Judge in Utah to dismiss Usana's (NASDAQ: USNA) frivolous defamation claims against Fraud Discovery and Barry Minkow and award them legal fees covering their Court costs.

I remind you that discovery in civil litigation is a two-way street. Minkow and the other Defendants can now subpoena all of Medifast's books, records, and documents and closely scrutinize them to look for any possible improprieties and irregularities in defending themselves in this litigation. In addition, they can subpoena documents from Medifast's auditors, vendors, customers, and other business relationships. You and others will be subject to sharp questioning under oath in pre-trial depositions by the Defendant's attorneys. Now Medifast's business documents will ultimately become subject to close public examination and careful scrutiny if this case goes to trial.

Medifast, meet Barbra Streisand.

© 2010 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.

'Shop to Lose' (a/k/a ShoptoEarn) Bloviates Against Blogger

I don't cover the multilevel marketing business very much, but one company obviously warrants attention: ShoptoEarn. A better name may be "Shop to Lose" because it is one of the most egregiously dumb ideas around, targeting housewives who don't know better.

Dumb, that is, from the consumer standpoint. For ShoptoEarn it is a clever idea.

What drew this company (which I had never heard of before) to my attention is its latest gambit, which is to seek to silence forensic accountant Tracy Coenen, who has been writing negatively about this company.

As can be seen from item linked above, ShoptoEarn is simply dumb, this time from its own perspective, because it doing nothing more than drawing attention to itself.

© 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.

Department of 'Oh My Goodness!'

In his column on corporate sleaze-factory Overstock.com some months ago, Joseph Nocera of the New York Times observed that CEO Patrick Byrne's "Internet ramblings have lost much of their 'oh my goodness' factor, so they don’t get the attention they once did."

Accordingly, Byrne and his nauseating paid stalker, the hideous Judd Bagley, have had to ratchet up the shrillness of their attacks on critics to divert attention from Overstock's accounting shenanigans. Yet still he is ignored, and Byrne has complained about that on several occasions.

Bagley no longer pretends that he is "director of communications" -- he rarely signs off on press releases -- and spends most of his days posting to an anti-Wikipedia website. Quite a popular man at Overstock, particularly among the hard-working employees paid less than him, I would surmise.

Forensic accounting expert Tracy Coenen today has a dispatch from the "oh my goodness!" front, concerning a falsehood-laden attack by Byrne on his most potent critic, fraud fighter Sam Antar, who was mastermind of the Crazy Eddie stock swindle.

Sam’s. . . a good target because he doesn’t back down. He has seen financial statements that stink over at Overstock, and he’s not letting go of the issue until his questions are answered. And mind you, these aren’t just Sam’s questions. They’re also the questions of many in the investing community.

Byrne's latest missive, used in waste of shareholder resources on the Overstock website, calls Sam Antar a "crook" -- an expletive he has directed at me, Herb Greenberg, and pretty much every one else who disagrees with him. Only this time -- oh my goodness! -- Byrne is right.

Sam Antar is a crook!

In fact, Sam says so pretty much every time he opens his mouth or posts on his blog. He logs thousands of hours flying around the country at his own expense, lecturing law enforcement on how to avoid crooks like him. He is a recognized expert on such things, warranting a lavish recent Fortune magazine article that infuriated Byrne.

What bothers Byrne is not that Sam is -- oh my goodness! -- a crook, but that he is honing in on this SEC-investigated, slimy company's accounting.

He knows that Sam is on to something, and that he has absolutely nothing to gain from what he is doing, except to atone for his past crimes.

The title of Tracy's post puts it well: "Overstock.com, what are you hiding?" As if we didn't know.

© 2007 Gary Weiss. All rights reserved.

They Don't Call Patrick Byrne 'America's Worst CEO' For Nothing

Overstock.com CEO Patrick Byrne reemerged on the Investor Village message board today after an absence of some weeks, to discuss a subject that is obsessing him day and night.

Now, before you peek at the link, see if you can guess what it is from the following choices:

1. His company's struggle to avoid bankruptcy;
2. His company's recent share price free-fall;
3. The SEC investigation of his company and himself;
4. Wikipedia.

The answer is, of course, No. 4.

Responding to a puzzled query in the Motley Fool message board, analyst Seth Jayson commented: "It proves Patrick is still a conspiracy theorist who believes that anyone who doesn't agree with him is plotting against him: investors, message board posters, wikipedia, whatever. And he is simply unable to leave it alone."

I think the reason he's off in la-la land has to do with the nagging issues surrounding Overstock's accounting, as recently highlighted in Sam Antar's blog. EBITDA and Regulation G are dense stuff, but they could prove difficult in the days ahead, as Tracy Coenen explains.

If you're the CEO of a company that has used questionable accounting, and is struggling to survive, wouldn't you focus on the Sith Lord, or school vouchers, or Wikipedia?

Hey, they don't call him "the worst CEO in America" for nothing.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Baghdad Byrne's Weekend Delusion-a-thon

Updated Monday, May 14

More on the continuing adventures of Overstock.com CEO Patrick Byrne, whose paranoid fantasies and lengthy, self-incriminating message board rants are a fascinating spectacle. His increasingly surreal statements brought back fond memories of Baghdad Bob, the famously delusional Iraqi information minister.

In our last installment, I described how Byrne's "forgetting" to report an SEC subpoena for a year might have been more than just an omission, but a misstatement.

Most CEOs would hold their peace in such a situation. But Baghdad Byrne continued to dig into the topsoil with his tongue, as he continued his verbosity to investors asking a simple question: Why did he wait a year before disclosing his subpoena? It was a fascinating example of a slippery CEO refusing to tell the truth.

Byrne began the weekend mouth-fest by bouncing off the walls on the Investor Village message boards Friday night, reacting to questions from Joe Nocera, who wrote an excellent column in the New York Times Saturday morning.

If you comb through the muck you will note that Byrne's central complaint against the Times was bogus. He was given hours of time to respond to Joe's simple query about the SEC investigation of Overstock, but refused to do so -- because, no doubt, he knew his spin would not work with perceptive Nocera. This Internet addict's "didn't check my emails" excuse will go down in the pantheon of unbelievable Overstock excuses, right alongside "cow in the highway."

Completing the surreal scene was Byrne's loyal factotum, resident stalker Judd Bagley, who threatened a critic -- Internet sleuth "ScipioAfricanus" -- with "exposure." So I guess you can expect the Overstock's antisocialmedia.net smear site to be cranking up some fairy tales fairly soon.

Byrne and the nauseating Bagley continued to thumb their noses at Reg. FD and public company disclosure norms by posting under Internet "handles" and not disclosing their identity and corporate affiliation with each post. (Not that it would necessarily make much difference. I think that their posting on a message board raises securities law issues even if they did identify themselves properly.)

Byrne's hysterical and largely incoherent post, "Gotterdammerung of the American mainstream media," predictably tosses Nocera into the ever-widening media conspiracy. But that's not as noteworthy as his desperate effort at damage control over the delayed disclosure of the subpoena.

Byrne's latest spin (repeated the following day) is that the subpoena "was a small fraction as long as the first, covered sub-issues of the first, as well as issues related to a broader investigation that is not about me or Overstock at all."

But that's not what the company's recent 10-Q said. The 10-Q doesn't say Byrne was subpoenaed on an investigation unrelated to Overstock or Byrne. In fact, subpoenas do not disclose, as a rule, the purpose of the investigation -- they just ask for stuff. Still if Overstock knew that the purpose of the two subpoenas was different, why didn't it say so? What possible reason would it have not to say so?

As you can see, the first quarter 10-Q said that both subpoenas requested the same things:

These subpoenas [emphasis added] requested a broad range of documents, including, among other documents, all documents relating to the Company’s accounting policies, the Company’s targets, projections or estimates related to financial performance, the Company’s recent restatement of its financial statements, the filing of its complaint against Gradient Analytics, Inc., the development and implementation of certain new technology systems and disclosures of progress and problems with those systems, communications with and regarding investment analysts, communications regarding shareholders who did not receive the Company’s proxy statement in April 2006, communications with certain shareholders, and communications regarding short selling, naked short selling, purchases and sales of Company stock, obtaining paper certificates, and stock loan or borrow of Company shares.

There can be only two reasons for this discrepancy:

1. The person who signed the 10-Q, Overstock CFO David Chichester, works secretly for the Sith Lord, so he sneaked in this materially misleading language, omitted the exculpatory information to make his boss look bad, and Byrne was too busy posting on message boards and looking for dead bodies in his trunk to notice;

or

2. Byrne is telling one whopper of a fib, seeking to mislead and distort by claiming that the Overstock subpoena is materially different from the Byrne subpoena.

Once again we have the "Groucho Marx challenge": What are you going to believe, Patrick Byrne or your own two eyes?

My challenge is this: What's the SEC going to do about it?

Ace forensic accounting sleuth Tracy Coenen observes:

Did you catch that? He’s claiming that his subpoena wasn’t related to the Overstock.com SEC investigation. That will be his reason/excuse for not disclosing it in Overstock’s Prospectus and SEC filings.

Patrick Byrne may also claim that since the subpoena was to him personally, and the Prospectus and 10-K both apply to the company, then there’s no violation or lie.

The cool thing is that neither of these excuses really pans out for Byrne. The company has now disclosed the subpoena, so to say that “previously it wasn’t related to the Overstock investigation but now we’re disclosing it… ” Well, you get the idea.

The Patrick Byrne mouth-a-thon continued into Sunday, with Byrne continuing to push the "Groucho Marx challenge" in a series of ever-lengthier, ever-loonier rants. Note this pile of pretentious, dishonest mush, and this post repeating and amplifying the "Groucho Marx challenge" I noted earlier.

He also seems in intent on pushing the line that the SEC is aiming at a broad, widespread conspiracy and Byrne is just a cooperating witness. If he was, of course, they wouldn't be issuing a subpoena, and his famous "celebration" press release (below) had already indicated that the SEC's interest was largely hostile. Note the admission that "Some of the requests suggest the whispering of the blackguards, but I remain unconcerned about their hokum."



"Blackguards" is Byrnespeak for "critics who have made credible, well-documented assertions concerning me and my company." It ain't "hokum," of course, and Byrne certainly seems concerned. Indeed, terrified.

That's one of a number of contradictions and lies that oozed from Byrne's weekend ravings, which I am sure will be giving the SEC and other Overstock-watchers plenty of grist for their investigations.

Hopefully for Coenen, Sam Antar, the media, the SEC and everyone else following this story and toting up his lies and evasions, Byrne will continue to keep his tongue primed and ready for deployment. As hole-digging equipment it is a remarkable instrument.

Felon-turned-crimefighter Sam Antar observes that back on January 30 he asked Byrne on the Investor Village message board if "the Board of Directors considered any additional disclosure relating to the SEC subpoena of Overstock.com?" Byrne's response was an evasive, abusive brushoff, and Byrne's minions later had Antar booted off the board.

Meanwhile, forensic accounting whiz Tracy Coenen is dazed and amazed by Byrne's weekend obfuscations:

So now, Byrne is claiming that the May 9 press release about the company’s subpoena really included his personal subpoena, even though he didn’t actually disclose that and the subpoena hadn’t even been issued yet. That might wash with some people, but not with me.

He now disclosed the personal subpoena separately, so he must believe that it has some significance and requires disclosure. Either it needs to be disclosed or it doesn’t, but Patrick seems to be saying that it didn’t need to be disclosed separately a year ago, and this year it does. Nonsense.

But you see, Tracy, you're making the same mistake I've sometimes made. Byrne is not taken seriously, and I think that somewhere deep down he does not expect to be taken seriously. As a child of ancestral wealth, he has never had to work for a living and expects to coast for the remainder of his life on the paternal nest egg, no matter how much wreckage he causes.

Hey, they don't call him the Baghdad Bob of CEOs for nothing!

UPDATE: An alleged Overstock insider posted anonymously on the Investor Village message board Sunday night, claiming that Byrne concealed his subpoena from the board of directors and was eventually forced to act by the SEC. If not a hoax, this could be devastating. Here's Tracy Coenen's post posing two additional questions for Byrne.

The alleged insider says:

All was good in the world as the SEC careful examined the evidence provided, until the SEC pronounced that one of the CEO's targets was without fault, Gradient/Camelback Research. This infuriated the CEO and he made mention of the 2nd subpoena to one to many persons. The word leaked to the Board of Directors via a variety of sources, including Sam Antar. The CEO was called on the carpet but he basically told the board to go F themselves, he wasn't disclosing a 2nd time. One member of the board of directors then resigned.

The SEC then pushed the issue and the board was forced to act, under legal advice, to disclose the 2nd subpoena in the latest 10Q. Patrick as royally pissed off and remains pissed off to this day.

He refuses to admit anything improper was done and it is now a firing offense at Overstock.com to mention the 2nd subpoena.

But if this account is correct, why didn't the board of directors resign en masse? It doesn't seem plausible that even the most pliable corporate board would accept such misconduct from a CEO without quitting -- and the Overstock board is arguably the most pliable in Corporate America.

Another interesting weekend discovery was made by Internet sleuth "ScipioAfricanus." He found that a Utah entity called Provo Labs is monitoring traffic to antisocialmedia. Provo Labs, which describes itself as "an incubator that invests in early stage web companies" (whatever that means) is Bagley's former employer.

Quite a weekend for this train wreck of a company.

LATER: More babble.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Did Overstock.com CEO Patrick Byrne Lie to the SEC?

This is fast becoming one of Overstock.com CEO Patrick Byrne's worst days in quite a few red-ink-smeared months. Pardon me if I am not shedding tears.

The fiasco du jour has been Byrne's failure to disclose for one year his subpoena by the SEC, and subsequent meltdown and spin campaign. His loyal subordinate, stalker-in-residence Judd Bagley, has served his boss by smearing Jim Cramer and spying on users of the Investor Village message board. (Hey, he's not called "Sleazey McSleaze" for nothing. Personally I think "the nauseating spectacle of Judd Bagley" has more of a ring to it.)

Now, on top of that, some have questioned whether the real issue du jour is not delay or concealment, but rather that Byrne has been flat-out lying.

It's not surprising that Byrne would lie, for the simple reason that he is a liar. I can say that with some confidence because just about every word out of his mouth about me has been a lie. But lying to the SEC is not a wise move. Under the right circumstances it can be a criminal offense.

A sharp-eyed reader posted the following as a comment and I think it is worth repeating here:

Did [Byrne] not only fail to disclose but also make false disclosures? See the deal docs for OSTKs 12/06 [secondary offering]:

Except as disclosed in the Prospectus, there are no legal, governmental or regulatory actions, suits or proceedings pending, nor, to the Company’s knowledge, any legal, governmental or regulatory investigations, to which the Company or any Subsidiary is a party or to which any property of the Company or any Subsidiary is the subject that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect or materially and adversely affect the ability of the Company to perform its obligations under the Agreement; to the Company’s knowledge, no such actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or threatened by others; and there are no current or pending legal, governmental or regulatory investigations, actions, suits or proceedings that are required under the Act to be described in the Prospectus that are not so described.

The key words here are "except as disclosed in this Prospectus." Ain't no disclosure of a subpoena of Byrne, boys and girls. Seems to me that Byrne is saying, "I'm not subpoenaed." But he was.

Gee, is that bad? Is it bad when a CEO misleads people who buy stock issued by his company?

Next comes reformed felon Sam Antar, who has pointed out on message boards that Byrne certified to the accuracy and completeness of the 10-K for 2006, as required by Sarbanes-Oxley.

Here's the relevant wording:

I, Patrick M. Byrne, certify that:

1. I have reviewed this Annual Report on Form 10K of Overstock.com, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;….

Oh my goodness. I think an SEC subpoena of the CEO of a company, in connection with an investigation of the CEO and his company, is a "material fact." He omitted that.

Gosh. Is that bad? Is it bad when a CEO omits a material fact from a 10-K and then certifies that he hasn't omitted any material facts from the 10-k?

And if it is bad, what is the SEC going to do about it?

The SEC may have bigger fish to fry in its investigation of Byrne and Overstock.com, but if you ask me this one stinks to high heaven.

UPDATE: Byrne's continued message board rants continued over the weekend.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

The Patrick Byrne Meltdown Continues

Quite a day for Patrick Byrne, CEO of Overstock.com! The day began with Byrne under a cloud because of new questions about his one-year delay in disclosing an SEC subpoena.

The day ended with the cloud turning into a London pea-souper, and Byrne in a full-blown meltdown.

Byrne continued to shovel himself into the topsoil with his tongue long after the sun dipped past the Sierra Nevadas. More blather, lies and smears from this parody of a CEO materialized on the Investor Village message boards.

Floyd Norris, the latest member of the conspiracy, opines on the Byrne phenomenon.

Byrne has this non-answer on IV to the extensive questions raised by Sam Antar and Tracy Coenen about his inventory accounting: "Inventory: our inventory has conservative reserves against it, the calculation is thoroughly reviewed by PriceWaterhouse every quarter, and in fact I think the reserves are really ample."

That's not only a non-answer, but it also responds to a non-question. The issue is not whether the "reserves are really ample" but rather his possible use of the reserves to manipulate the P&L.

Sam Antar responded: "Were Overstock.com's inventory reserves for each and every quarter that the company filed reports to the Securities and Exchange Commission 'conservative' and 'ample'?"

Since Byrne does not take advice, here is a suggestion that I hope he disregards: Don't behave this way at your SEC deposition.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Another Overstock.com Inventory Bombshell

Forensic accounting expert Tracy Coenen has another devastating article in her FRAUDFiles blog on the inconsistencies in Overstock.com's financial disclosures and public statements on inventories.

Yes, inventories are definitely not glamorous or lurid (as contrasted with, say, the ethical time bomb in the person of Overstock.com's resident stalker Judd Bagley).

A human nightcrawler may be more interesting copy, but the SEC, which is investigating Overstock.com (or investigating "on" Overstock.com, as the company's disclosures put it ), is likely to hone in on stuff like this.

As Tracy points out,

Inventory is a financial statement line item that is notorious for being abused. Some companies are loath to record proper reserves, and so inventory may be on the balance sheet at too high a value. On the other hand, when a company has a really good quarter, it may be tempting to overstate the reserve to create a little “cookie jar” for later. (The idea is that we recognize additional expense in this good quarter, since we still have “room” for more expenses. Then during a later quarter when numbers aren’t as good, we can dip into that reserve to pump up the earnings.)

And that is precisely why Tracy and Sam Antar, the reformed felon now working with the government in uncovering frauds, are focusing so intently on Overstock.com's inventory disclosures.

This is not trivial stuff, folks.

No summation of her fine work would do justice. Read her blog. Be sure to catch both items (the latest one and Friday's post) as well as Sam Antar's detailed analysis.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

The Overstock.com Inventories Bombshell

In previous items I've described how Overstock.com -- the fascinating slo-mo corporate train wreck -- has come under scrutiny from two of the sharpest experts in fraud detection around, forensic accountant Tracy Coenen and Sam Antar, the reformed felon who is an ally of the government in its fight against white collar crime.

Tracy and Sam are both out with blog items overnight that are absolutely devastating. They raise serious questions concerning an issue that has proven lethal for companies in the past -- the possibility that Overstock.com may have misrepresented its inventory numbers.

Tracy's post, entitled "Is Overstock.com misrepresenting inventory?", can be found here. Sam's post provides a thorough analysis of the inventory issues and a number of others. Both analyses should be of great value to the SEC in its ongoing investigation of Overstock.com (or "on Overstock.com." as the company likes to say).

Tracy focuses on just one crucial sentence of the company's 2006 Form 10-K, that "We have entered 2007 with more attractive, higher margin inventory, and as a result, we expect our gross margins in 2007 to increase significantly over 2006 levels."

But after going through the numbers, she says as follows:

So let’s get this straight… in terms of raw dollars, the obsolete (junk) inventory was greater at the end of 2006 than it was at the end of 2005. And as a percentage of total inventory, the obsolete (junk) inventory was over 4 times higher than 2005.

How is this inventory more attractive when you’re admiting that 1/4 of it is junk??? Or, was way more junk sitting around in 2005, but the company purposely did not reserve for it? (Which would, oddly enough, probably be a material misstatement in the financial statements.)

Sam's post provides a detailed analysis on a wide range of accounting and disclosure issues, as indicated by its title: "Is Patrick Byrne, Overstock.com CEO, making false, misleading, and/or deceptive statements about the company’s financial issues?"

He also highlights the absolutely miserable job being done by sell-side analysts -- obviously intimidated by the notoriously vindictive CEO Patrick Byrne -- and points to a number of questions that they did not raise at the company's recent conference call:

Mr. Byrne, if you:

"had your “game plan as of Q1 last year of what was going to have to happen”and

you “knew things were going to get really ugly and the company was going to have take medicine” and

"that medicine was going to be in the form of some expenses”and

“it was going to be in the form of dumping a bunch of inventory”

Why did Overstock.com wait until the 4th quarter of the fiscal year ended December 31, 2006 to take relatively high reserves against its inventory?

Tracy says that she has "plenty to say" about the inventory issue not covered in her item last night, and Sam is also conducting an ongoing probe of this company's public statements and disclosures.

It should be emphasized that neither individual is a short seller of Overstock.com shares, and neither has received any compensation for doing this good work. They are doing it because they are disgusted with this company's loathsome behavior, and fascinated by its slippery approach to public disclosure. Both have the ear of regulators.

Apparently the vicious personal attacks both have received from Overstock.com minions have not had the desired effect.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Connosseurs of Fraud -- Take Note

Two excellent blogs have come to my attention recently. They are essential reading for anyone wanting to really understand how companies work and why they go belly up.

One is Lee Distad's Professional Opinion, by one of the sharpest business bloggers there is, and the other is the FraudFiles Blog, by ace forensic accountant Tracy Coenen.

It just so happens that they both have items on Sam Antar's analysis of the Overstock.com-Patrick Byrne meltdown.

Here is a link to the item in Lee's blog and here is Tracy's view of the subject.

Lee observes as follows:

I really have only paid tangential attention to this whole bizarre and sordid tale of corporate malfeasance. And frankly, I don't have the stamina to bring you all up to speed. However, Sam "The Human Pitbull" Antar has sunk his jaws into this story, and like any good crusader/pitbull cross, he won't let go.

Tracy's take on the mess:

Sam [outlines] what Patrick Byrne has said about his knowledge and involvement with [Overstock's antisocialmedia.net corporate smear site] after the fact, versus what was posted on various sites at the time questions first came up about ASM. It appears Byrne was less than truthful.

The last statement may seem understated, but coming from Tracy it speaks volumes. It means that the SEC's probers are probably thinking along much the same lines.

© 2007 Gary Weiss. All rights reserved.

-----------

Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.