Donald Trump and Lying Liars

The media lately has been calling Donald Trump a "liar" in its own voice. That's accurate. He does lie. But does the media want to be in the liar-calling business? What about all the other liars in the world, from Assad in Syria to Vladimir Putin to a whole bunch of CEOs?

My analysis in Columbia Journalism Review, online this morning, can be found here.

© 2016 Gary Weiss. All rights reserved.

Judge Fines Overstock.com $6.8 Million, Rules It Needs a 'Price Coach'

Sam Antar's blog is out this weekend with an item describing how a California judge has slammed Overstock.com with a $6.8 million penalty for consumer fraud.

Ruling on a lawsuit brought by a consortium of California district attorneys, the suit contends that Overstock used phony price comparisons in claiming that it offered customers a bargain.

What's interesting about this case, I think, is how Overstock worked overtime to head off the bad news. In a TV commercial (see below) featuring Mike Ditka, the "price coach," the company claimed that it "price checked over 500,000 products a week" to make sure customers got the best prices.

But Judge Wynne S. Carvill, a Superior Court judge in Alameda County, didn't buy that malarkey. He ruled that Overstock systematically overstated the amount of savings customers could get by buying at Overstock.

To make matters worse for the company, it not only has to pay the fine, but is likely to be assessed attorneys fees and investigative costs, which could run into the millions, and it will be subject to an injunction requiring Overstock to provide proper price comparisons.

That's a real "price coach," not an actor playing one.

The irony is that customers don't need a price coach to find out if they're getting a good deal at Overstock. All they need is Google or a free browser add-on called Priceblink, which automatically compares prices at a variety of online vendors.

Anyway, it's not over for Overstock. I'm sure the company will appeal, throwing more good money after bad. Sam reported that last quarter "the company reported a $2 million increase in legal fees resulting in large part from the 'defense of a case brought by district attorneys in eight California counties.'" That's dumb, I guess, but not as dumb as the consumers who actually buy there expecting the best deal.

Just today I was looking for a cheap corded phone. At Amazon.com an AT&T 210 corded phone costs $9.34. At Overstock the price is $13.59. OK, that stinks, $4 more than Amazon. That's bad, but what's worse is this:  

Save $12.23 (47%) Compare $25.82

 Yep, that's what it says. $25.82-- $7 above the list price, which, as the Amazon listing points out, is $18.79.

 When you click on "compare" you get the following gobbledygook:

What is "Compare"?
The term "Compare" means the price at which, in the reasonable judgment of our experienced buyers, manufacturers or suppliers, the item may be sold in the U.S. on an everyday basis. Other vendors sometimes refer to this as the "retail price" exclusive of special promotions or sale prices, at which the item might be offered at retail stores and at customary retail mark-up. In many instances, though not all, the "Compare" prices reflects a price suggested by the manufacturer or supplier of these goods, without reference to actual retail sales and may amount to an estimation of a retail offer price in accordance with standard industry practices. It may also include a reasonable average estimated shipping cost, if ordinary shipping costs have been discounted or eliminated.

We make no representation that the products have been sold or offered at the "Compare" price, and the price may or may not reflect the average or prevailing market price in any area on any particular day. For some items listed as a set, the "Compare" price may be an aggregate of the suggested or estimated prices for all items included in the set. Actual retail sales in your area may substantially differ from the "Compare" price. Moreover, the nature of internet sales on a national or international basis, and the fact that we deal in overstocks, closeouts, end-of-season, and unique items that may be sold only on Overstock.com, precludes our ability to know whether our products are sold at the "Compare" price at any particular location or time by other vendors.

You may choose to use the "Compare" price as an approximate guide to what you would or could pay for these items in other locations, at other times, or under other conditions, including full retail price.

Translation: "ain't nobody selling it for $25.82." A Priceblink price search bears that out.

When Overstock says "the nature of internet sales on a national or international basis, and the fact that we deal in overstocks, closeouts, end-of-season, and unique items that may be sold only on Overstock.com, precludes our ability to know whether our products are sold at the 'Compare' price at any particular location or time by other vendors..."--that's just sheer ca-ca. A quick Internet search, with or without Priceblink, shows quickly that the "compare at" price is as phony as a $3 bill.

Yep, Overstock customers sure could use a "price coach," though I don't think there's much the "coach" would say except, "shop somewhere else." 


© 2014 Gary Weiss. All rights reserved.
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Novastar and Overstock in the News

Patrick Byrne touting subprime lender Novastar, July 24, 2006

Two of my favorite corporate con jobs are in the news today.

The New York Times has a fascinating book excerpt from Reckless Endangerment, a new book by Gretchen Morgensen and Joshua Rosner. It describes the unsuccessful efforts by short-seller Marc Cohodes to get the SEC interested in the fast-falling subprime lender Novastar Financial.

Cohodes failed, and the company collapsed. Had the SEC listened to the man, investors could have saved millions of dollars.

I've written about Novastar at some length, in the context of the campaign by anti-naked-shorting conspiracy theorists. A loon by the name of Philip Ross Saunders, working under the pseudonym "Bob O'Brien," viciously attacked critics of the company and had an entire website, nfi-info.net, devoted to attacking critics. The site has been defunct for years, and Saunders is believed to be tracking UFOs from a trailer park in Costa Rica.

Among the company's most fervent supporters was Overstock.com's nutty CEO Patrick Byrne, who called the company "awesome" and was a major supporter of Saunders, at one time holding up a sign with the URL of Saunders' Novastar-boosting website in a CNBC appearance. After that happened, Byrne was banned from CNBC.

At one point Byrne flew in to New York with Saunders for a meeting with Forbes staffers. The meeting was a disaster, with apologies from the organizer - member of the Forbes family who knew Byrne from college - for wasting everybody's time, I'm told by one of the participants.

Overstock is similarly under SEC investigation, and the probe has dragged on inconclusively for years.

Also out this weekend is a blog post from white collar crime watchdog Sam Antar, describing how Overstock has lost a court fight in California to keep prosecutors from interviewing former Overstock employees without Overstock officials breathing down their necks. The company is being sued by prosecutors in seven California counties for rampant consumer fraud.

Apparently Byrne's strenuous effort to buy influence in Oakland -- by buying naming rights for a local stadium -- has not paid off. Where are corrupt local officials when you need them?

As Sam points out, the rather curt court ruling rejected a strenuous effort by Overstock to obstruct the investigation:

Overstock.com did not want the Alameda County District Attorney to directly contact any ex-employees with possible knowledge of alleged wrongdoing. The company wanted the District Attorney to use it as a go-between to contact its former employees. This way, the company could know in advance, exactly who the District Attorney was going to question. It potentially gives the company an opportunity to get to specific witnesses before the District Attorney questions them and obstruct the investigation.

It was such a transparent ploy that the judge didn't spend much effort rejecting it. So the always enjoyable Overstock saga goes on.

© 2011 Gary Weiss. All rights reserved.

What a Coinkydink! Overstock.com Buys Naming Rights Near Courthouse

How to get from the Overstock courthouse to the Overstock stadium

My favorite corporate crime petri dish, Overstock.com, is currently fighting a savage legal battle with seven California district attorneys over one of its favorite causes: its God-given right to rip off customers.

So it was fascinating to learn that Overstock had decided to spend $7 million to splatter its name over a stadium in..... guess where? Salt Lake City, where it is located, and where most such naming takes place? (You know, community goodwill and the like.) Or would it be Alameida County, where it is being sued?

You guessed it. What a coinky-dink! Why, they wouldn't be wanting to influence the legal process by throwing their shareholders' scant money around, would they? Of course not, though I have to admit that doing stuff like this is one of the grimiest and oldest ploys in creation.

In the map at the top, the new Overstock stadium is B, and the courthouse where it's fighting for its right to rip off customers is A.

Gee, what's the matter? Whatever happened to pay for play? Aren't politicians or judges for sale in Oakland? Don't DAs take political contributions?

Mark Shurtleff, have you thought of relocating?

© 2011 Gary Weiss. All rights reserved.

Overstock.com Obstructs California Fraud Probe

Sam Antar has a devastating blog post out today describing how Overstock.com has been dodging efforts by California law enforcement agencies in their civil prosecution of the firm for consumer fraud.

Sam's post caused the shares of the company to dip today, according to StreetInsider, which is the first time I've heard of a blog post affecting the share price of this dog's breakfast of a company. I'm surprised that investors aren't already clued in on this company's skankiness. Where have they been? You'd think that maybe they were reading the Utah newspapers, which only publishes puff pieces about the company.

According to the court filings, Overstock is trying to force the California cops to contact former employees through Overstock. This squalid effort to derail the investigation is described by Overstock as an effort to protect the privacy of former employees, when of course the opposite is the clear intent. Overstock wants to know which of its former employees' is being contacted by California to chat about the company's cheesy pricing practices.

Sam points out the irony of this line of bull.

And speaking of invasions of privacy, I see that CEO Patrick Byrne's hireling Judd Bagley, who heads Byrne's cyberstalking operation and is now back on the Overstock payroll, has formally cashed out of Byrne's Deep Capture blog.

The document can be read in all its glory below.

Bagley Bails Out

What makes this interesting is that really eliminates any distinction between Deep Capture and Overstock. Bagley is still posting on the blog and still serves as the blog's formal agent for service of process, so all this demonstrates is that Deep Capture is an arm of the SEC-investigated retailer.

So when Bagley wrote the other day to compare a rape victim in Libya to his much-criticized boss, he was acting in the scope of his employment at Overstock. I wonder what kind of Nescafe they're serving in Salt Lake City nowadays?

UPDATE: Responding to a routine phone call from a Bloomberg reporter, the besieged CEO Patrick Byrne went ballistic on his corporate blog. This California investigation seems to be a sensitive issue. I wonder what he has to be afraid of?

It's too bad the California DAs aren't for sale, like a certain Utah attorney general who will go nameless. Those unpurchased public officials sure are a pain in the neck.

© 2011 Gary Weiss. All rights reserved.

California Sues Overstock.com on Pricing Scam

In my Street.com column a couple of weeks ago I described one of the ways companies conceal bad news -- by burying it in the "risk factors" section of their SEC disclosures. I cited as an example my favorite corporate crime petri dish, Overstock.com. For the past two years, Overstock has buried news that its pricing practices were under investigation by California criminal authorities.

Yesterday, the district attorneys of now seven California counties sued Overstock for $15 million, claiming fraudulent pricing practices. The counties had offered to settle with Overstock for as little as $7.5 million, but Overstock refused. No wonder: if the company had coughed up such a substantial amount of cash, it probably would have been driven into bankruptcy.

The allegations in California allege one of the oldest consumer scams in the books:

"Beginning no later than January 1, 2006, Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products," the civil complaint states. "Overstock used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers."

Here is the lawsuit:

California AGs vs. Overstock

The company's general counsel "denied the allegations in the complaint and said the district attorneys failed to understand how Overstock advertised its prices." No, actually it seems to me that the DAs understood how Overstock advertised its prices.

Seems that an outraged consumer's complaint led to the charges against Overstock:

In 2007, Mark Ecenbarger bought a patio set for $449 on Overstock. The website claimed the list price other companies were charging for the set was $999.99.

But when the furniture was delivered, there was a Walmart sticker on the side of the box showing the set was really worth $247.

The reaction of the market to this news, which emerged after the markets closed last night, is intriguing. The stock is actually up substantially. The reason for that is simple: fraud is already incorporated into the share price. This company is under SEC investigation for systematically cooking its books. Why should consumers be treated any differently than shareholders?

Overstock is pretty shameless in its fraudulent pricing. As noted in the lawsuit, BusinessWeek surveyed its pricing practices back in 2004 and found that it systematically overstated "list" prices. For example,"of the 92 Toshiba and Panasonic products available Mar. 2, 40 had list prices higher than the manufacturers' list."

Just for the heck of it I checked out Overstock's price for the paperback edition of Andrew Sorkin's Too Big to Fail. The price at Overstock is $11.06 and the search page for the book fraudulently says "compare at $20.55" and "you save 46%."



Baloney. The biggest online retailer, Amazon, lists the book at $9.90 and gives the list price as $18.00, not "$20.55." Barnes & Noble also prices the book at $9.90, and gives the correct list price.

So where did Overstock conjure up that "compare at" price? The Future Felons of America outlet shop in Salt Lake City? Misstating an easily determined (you look at the book cover or website) publisher's list price takes a degree of unmitigated gall, and contempt for the law, found only at Overstock.com.

Seems that Overstock has as much contempt for its customers as it does for its long-suffering shareholders.

UPDATE: Predictably, the two statewide Utah newspapers, the Salt Lake Tribune and Deseret News, always happy to run trivia like this, published not a word on the lawsuits.

But numerous other media outlets have picked up on the story including an ABC affiliate in California. Hey, you can't buy publicity like that, especially at the beginning of the holiday season.

© 2010 Gary Weiss. All rights reserved.

The Right and Wrong Way to Commit Corporate Crime

In my Street.com column today I describe the parallels between Arthur Samberg and Kenneth Starr, how one represents the right way to commit an (alleged) crime, and one the wrong way.

It can be found here.

© 2010 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.

GEICO's John J. Byrne Regains His Sanity

As a longtime GEICO policyholder I've long admired John J. Byrne, the man Warren Buffett hired to run GEICO, which he turned into a powerhouse that also provides terrific customer service. So I was saddened to hear about his slide into senility.

Yes indeed. Sad, isn't it? His own son, Overstock.com CEO Patrick Byrne, said as much in an interview with CNet four years ago, at a time when the elder Byrne, then the non-executive chairman of Overstock, was critical of his wack-a-doo son's paranoid anti-short-selling campaign.

Chairman John "Jack" Byrne called Overstock CEO Patrick Byrne's fight distracting. The younger Byrne is waging a public-relations and legal battle with short-sellers and analysts he contends are conspiring to depress the company's stock price.

"I can't tell whether this jihad adds to the value of the stock or subtracts from it, but what it does is take from Patrick's time," the senior Byrne said in a Wall Street Journal story on Thursday. He said his "headstrong" son has ignored his pleas to drop the fight.

John Byrne said he'd seriously consider stepping down as chairman after stockholders meet next month, but would remain on the board as a director.

In fact he did step down as chairman and then from the board entirely. In the Overstock tradition, the widely publicized reason for his leaving the board was tastefully and fraudulently omitted from the company's SEC disclosures.

Such comments meant only one thing to Patrick Byrne--his father was mentally ill. He told CNet:

"You know, when you're 74, you feel differently every day, based on what you have for breakfast that morning," the younger Byrne said of his father. "I never really expected him to get this fight."

Poor man. Well, you'll be pleased to know that John Byrne is no longer drifting into dementia. He's now 78 and sufficiently in possession of his faculties to rejoin the Overstock board of directors.

"My father brings tremendous wisdom and experience, which will help Overstock continue to grow and mature as a company," said Patrick Byrne. "I am pleased that the Board of Directors nominated him, grateful that he was elected by the stockholders, and look forward to working with him again."

It will be interesting to see if John Byrne "drifts into senility" again by taking issue with its thug-in-chief, or instead chooses the route taken by the rest of Overstock's board of directors--which is to do nothing in the face of rampant securities fraud.

© 2010 Gary Weiss. All rights reserved.

Overstock.com Reports Profits! (By Juggling the Books....)

You have to admit: my favorite corporate crime petri dish, Overstock.com, may be many things, but one thing it is not is unpredictable. When last we left our heroes, they were reporting "profits" for 2009 by juggling the books, in the process manipulating its shares upward by one-fifth.

Yesterday, the company again announced profits, this time for the first quarter of 2010 -- and again, pulled off this fete by juggling the books, and again concocting a surge in the company's shares.

We know this is happening not because of the atrocious Utah media coverage of this company, but because of white-collar crime fighter Sam Antar, whose analysis of the latest Overstock smoke-and-mirrors show is linked above.

This time, Sam finds, Overstock was able to manufacture black ink by manipulating its return figures. Additionally, he notes, the company's internal financial controls remain FUBAR, making pretty much anything it says about its financials suspicious at best.

According to the company's latest quarterly report, the long-pending SEC investigation of these very issues is continuing. The issue before our securities watchdog is one of intent. There is now no doubt that Overstock has systematically cooked its books. The company admits to that. The question is whether the SEC will swallow Overstock's malarkey that it threw its financial statements into the stew pot strictly by accident.

Hey, that makes sense. Most fraud is an accident, right? At least it is, according to the fraudsters.

That defense is even sillier than usual, because it's a matter of record that Overstock CEO Patrick Byrne was repeatedly warned of those very accounting issues by Sam Antar -- and that Byrne responded by stalking, smearing and harassing Antar.

It remains to be seen whether the SEC will let itself be sold the Brooklyn Bridge by the con men at Overstock. Stay tuned.

© 2010 Gary Weiss. All rights reserved.

When is Good Publicity Not So Great?

The answer is: when you're investigated by the SEC, and you lie in the Washington Post.

Yesterday, Overstock.com's wack-a-doo CEO Patrick Byrne was the subject of a puff piece by the AP. White collar crime-fighter Sam Antar tells me that he was talking to the writer of the article for literally weeks--and yet the AP reporter, Paul Foy, omitted crucial facts, and allowed Byrne to tell a breathtaking lie.

The problematic passage is as follows:

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

Foy left out entirely that correcting the "accounting errors" had turned a much-ballyhooed fourth quarter 2008 profit into a loss. It's right there in 10-K, in black and white.

That is not a small thing. When the phony fourth-quarter profits were announced in January 2009, it pushed up Overstock shares by 21%. The news agency to which I just linked, Reuters, has never revisited the subject.

Nor did the article report that Overstock had bitterly fought the restatements, firing one of its previous accounting firms, Grant Thornton, or that it is under a continuing SEC investigation. For a piece that took weeks to prepare, such omissions are inexcusable.

Foy also irresponsibly quotes Byrne as comparing whistleblower Sam Antar to Bernie Madoff, when it was Sam who had blown the whistle on Overstock's accounting gimmickry.

The problem, for Overstock at least, is that this lamentable journalism, containing a blatant lie by Overstock's CEO, was published today, lies intact, omissions glaring, in the Washington Post. Pickup of the AP story by the local Utah media can be ignored, but not splashed in the SEC's hometown daily.

The SEC may well be destined to give Overstock the Allied Capital Treatment, but the Post article doesn't help, unless the SEC officials involved are too busy writing their resumes to care.

This AP story, meanwhile, raises a journalistic issue that I thought had been settled a long time ago: when a CEO lies, and when the reporter knows it's a lie, is the reporter obligated to point that out?

The answer, which I think is pretty obvious, is "of course." Otherwise the media becomes embroiled in what is, in effect, a pump-and-dump scheme. Reuters can't be held responsible for its January 2009 article reporting the phony Overstock financials, but the same can't be said for the AP.

The other question that it raises, which I've broached before: To what extent are puff pieces like the AP's motivated by a desire to avoid Byrne's well-known penchant for attacking the press?

Barry Ritholtz calls the AP story some of the worst business reporting he's ever seen. It's hard to argue with that.

© 2010 Gary Weiss. All rights reserved.

The Utah Newspapers Fail -- Again

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Also, the Going Concern accounting blog weighs in.

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

© 2010 Gary Weiss. All rights reserved.

California to Overstock.com: You Owe Us $8.5 million (or is it $7.5 million?)

Byrne: Still hasn't learned to count

My favorite corporate crime petri dish, Overstock.com, just released its delayed and re-re-re-restated financial statements for 2009 and 2008 (which it has previously loused up), and a quick skim reveals some interesting tidbits.

I'm sure that the white collar crime-fighter Sam Antar will be providing an expert accountant's analysis of this latest spate of Overstock filings, but a skim shows a few interesting things:

First--stop the presses! Overstock's auditors at KPMG says that Overstock has insufficient internal controls.

Second, the Marin County District Attorney and four other DAs in northern California want the company to fork over $8.5 million to settle consumer ripoffs by Overstock. The company disagrees and is fighting it, so .... No, wait a moment, make that read "$7.5 million." It uses the smaller number on page F-37 and the bigger number on page 33.

Really. Here it is. Page 33:

In January 2010 attorneys for the Company received correspondence from the Office of the District Attorney of County of Santa Clara in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $8,500,000 in penalties and reimbursement.

Page F-37:

The Company received correspondence from the Office of the District Attorney of the County of Monterey in which the respective offices of the various district attorneys have made a collective proposal to resolve the dispute by the Company's payment of $7,500,000 in penalties and reimbursement.

Hey what's a million here or there when your numbers are already fabricated, right? Anyway, I'm sure glad they asked for that delay to get their numbers straight.

By the way, California made this demand back in January. Isn't it charming how Overstock didn't bother filing an 8-K saying that people who can put you in jail want $8.5 million/$7.5 million? As I've said before, Overstock's not big on niceties of the securities laws, particularly the ones concerning "fraud," "ethics" and "disclosure."

There's a lot more, I'm sure -- such, as I suspect, these numbers--stated, restated or parboiled--not be worth the powder to blow them away. Just an educated guess.

Oh, except for that $7.5 million/$8.5 million number. I'm sure one of those numbers is correct. Maybe.

There was a restrained press release on the latest attempt at financial reporting from Overstock's loony, cyberstalking CEO Patrick Byrne.

Said Byrne, "I thank you for being patient with us as we worked through the questions raised by the SEC, the transition to the KPMG team, and the extra time it took to ensure that our financial statements are accurate." Yes indeed.

Since there was a press release, I imagine that Salt Lake City's tongue-tied newspapers now will have something to rewrite. I'll be majorly shocked if they mention that little problem in California. After all, that would require doing something other than rewriting the press release or running the wire story.

Anyway, I'm sure there will be more on this always entertaining company. Stay tuned.

© 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.

Overstock.com Fails to Celebrate Latest Fiasco

My favorite corporate crime petri dish, Overstock.com, and its goofball CEO Patrick Byrne, have been laying low recently, as followers of these child-stalking douche bags waited anxiously for what has come to be known as the Quarterly Lie: Overstock's attempt every three months to fabricate profits out of red ink.

Today, in a filing that came about a half-hour before the drop-dead deadline, Overstock filed a form with the SEC asking for more time to file its 10-K for 2009, on the grounds that the need to restate every financial statement since Adam created a logistical problem for these poor dears. But not to worry, they expect to erect another mountain of profit out of sun-dried red ink.

No press release, no yipikaye, to celebrate this latest fiasco. But there is this gem:

Also in its 2009 Form 10-K, the Company plans to report material weaknesses in its internal control over financial reporting.

File that under "No shit, Sherlock."

The only problem (well, it's not the only problem, but I'm being rhetorical) is that this latest filing has more than a bit of a problem.

As for what that problem is, tune in tomorrow. Same time, same station, same douche bags.

UPDATE: The envelope, please. . .

© 2010 Gary Weiss. All rights reserved.

Sharesleuth Hones in on a Naked Shorting Gasbag

Pitt is partners with a barred broker

Interesting article in Sharesleuth today, describing a cellular company's ties with a variety of shady characters--including a barred broker who has built a business catering to companies that use "naked short selling" to divert attention from their own wrongdoing.

The company at issue is called Lenco Mobile, and the site describes how the company is hooked up with a "recidivist SEC offender" named Michael Crow, and also is tied in with an odious character named Thomas C. Ronk.

Ronk is a regular on the naked shorting conspiracy carnival circuit:

Ronk operates several investment web sites, including BuyIns.net, which purport to identify companies whose stocks have been targeted by illegal "naked shorting'' and are poised for price jumps.

He also is partners with former SEC Chairman Harvey L. Pitt in RegSho.com, a site created to help short sellers locate shares to borrow so that they can remain in compliance with market rules.

Dealbreaker had an item a while back on Pitt's involvement in that creepy outfit, and how it constituted a conflict of interest. Pitt, arguably the worst SEC chairman in recent history, resigned in disgrace in 2002 after doing such a bad job that he just couldn't go on.

It's not news that Ronk has a regulatory history a mile long, or that he is in the business of helping crappy penny stock companies lure investors--as I described in this item in 2007--but Sharesleuth provides an interesting description of Ronk's pedigree.

Ronk was a stock broker in Southern California before running afoul of regulators.

In 1999, he was fined $50,000 and suspended for 30 days by the NASD. Without admitting or denying the allegations against him, Ronk consented to the entry of findings that he participated in private securities transactions without providing prior written notification to his firm, describing the proposed deals or his role in them.

Ronk's securities registration was later revoked for failure to pay the fine.

Ronk now is proprietor of several web sites, including BuyIns.net and SqueezeTrigger.com, that purport to identify stocks that have been the subject of heavy shorting and are poised to rise in price as traders cover their positions.

Ronk has been one of the most vocal proponents of a theory that a shadowy network of hedge funds and other investors have been driving down the stock prices of U.S. companies through so-called "naked shorting'' of their shares.

Two of the companies that complained most loudly about the issue - Universal Express Inc. and Pegasus Wireless Corp. - later became the subject of SEC cases alleging that they improperly dumped vast amounts of stock on the market, undercutting their own share prices.

True, but Ronk is even more closely tied in to stock scams than that. His Buyins.net suckers in hapless small investors looking for "short squeezes" in crappy penny stocks, including the Utah pump-and-dump Cyberkey Solutions, whose CEO, James E. Plant, was indicted for lying to the SEC about a pump and dump scheme involving his company. He pleaded guilty and was sentenced to 97 months in prison for promoting his bogus "homeland security" company, witness tampering and obstructing the SEC probe. (What's interesting about the latter charge is that he obstructed the SEC investigation far less blatantly than some other people I know.)

In this 2006 press release from Cyberkey, the now-imprisoned Plant uses Buyins.net "short squeeze" data in an effort to lure in more suckers. It's yet another indication of how the naked shorting conspiracy types provide a ready-made excuse for stock manipulators, or (as in the case of CEOs like Richard Altomare of Universal Express and Patrick Byrne of Overstock.com) are themselves cooking the books or otherwise ripping off shareholders.

Now, the one fly in the ointment here is that, as I've pointed out previously, Sharesleuth is financed by trading profits from shorting stocks mentioned in its articles. Such arrangements cross ethical boundaries. However, according to a disclosure in the article, "No one associated with Sharesleuth has any investment position, short or long, in Lenco Mobile."

Great. So why not make that a rule? My suggestion to Mark Cuban, who owns Sharesleuth, is that he drop this "profiting from shorting" stuff and figure out another way of financing the site. More frequent items would be nice, and, of course, exposing the naked shorting crooks on a regular basis would certainly put his website on the side of the angels.

Cuban is involved in an insider trading case (dismissed but still being pushed by the SEC) that is increasingly appearing to be a waste of SEC resources. If he removes the "legal insider trading" aspect from Sharesleuth -- and continues to crank out good stories like this one -- he's going to get a lot more public support.

UPDATE: A reader brings to my attention that Ronk used to work for the L.T. Lawrence chop house, one of the most notorious fraud factories of the 1990s, belatedly shuttered by the NASD in 2000. Lawrence was one of the numerous employers of Louis Pasciuto, the subject of my book Born to Steal.

It's not clear from the filings whether Cyberkey paid Ronk for its "research" (nondisclosure, of course, would be spitting on the sidewalk compared to the companies other crimes). Overstock.com paid him $18,910 in 2007, and other crummy little companies also pay him handsome "data fees."

© 2010 Gary Weiss. All rights reserved.

Patrick Byrne Admits Ownership of Deep Capture

Not exactly a well-kept secret, yet Byrne still lied about it

Two posts on the corporate crime petri dish Overstock.com in one day! My goodness.

Overstock's loony CEO, Patrick Byrne, has been curled up under his desk since his company announced that its financial statements dating back to 2008 have been phony. But before the cone of silence descended, Byrne made a startling admission: he conceded that he owns the Deep Capture smear site. It just came to my attention, and nobody has picked up on it.

In a post on Stacie Kitts' excellent accounting blog on Jan. 18, Stacie had said in passing,

Now, if I am getting this right, Patrick Byrne is the CEO of Overstock.com and a purported owner of a website called Deepcapture.com.

Byrne materialized the following day with a comment:

Thanks for the story and the link. There are, however, some minor suggestions I’d make. You say:

“and a purported owner of a website called Deepcapture.com.”
Actually, for much of its existence we just put a big bubble on the upper right hand corner of the home page explaining that I am indeed the funder of DeepCapture.com; later, we added a whole page about it and who we are. So there is nothing “purported” about it. [Emphasis added]

Now, Byrne's ownership of Deep Capture was not exactly a well-kept secret. It used to be that users of that website could click on a link taking them to Overstock, and 5% of purchases would go to the site (see illustration at top of item).

But this is the first time he's fessed up and admitted owning the site, which is dedicated to personal attacks on the "criminal" journalists, bloggers and ordinary citizens who have dared to criticize Byrne: myself, Sam Antar, Roddy Boyd, Joe Nocera, Betany McLean, Susan Antilla, Herb Greenberg, and a host of others. Some of the targets are message board users, people you've never heard of, who hate crooks.

It's not clear why Byrne decided to let the cat out of the bag. Perhaps the subject came up in the SEC probe. Perhaps he's off his meds. Perhaps he's on his meds. Who the hell knows? All I know is that Byrne and his minions have lied about this in the past, and that if Stacie hadn't mentioned it in her blog today I might have missed it entirely.

Byrne had previously gone to great lengths to conceal his ownership of Deep Capture, initially listing a Byrne-controlled entity as owner in Utah corporate records, and then erecting a separate corporate shell. Ditto the bottom-feeding creep who runs the site, Judd Bagley. The latter denied that he worked for Byrne in a webcast last week. Byrne had admitted to the extent of his funding in a New York Observer article last month, but never came clean about actually owning it.

In a comment to an article in The Industry Standard in 2008, Byrne explictly denied that he owned Deep Capture.

The author of the article asked:

A few questions for you regarding your statement that Deep Capture is a work of "investigative journalism": Are the writers paid by you? Are they paid, full-time employees, or freelancers? Who pays their salaries? You describe yourself as a reporter, but are you also an editor? Do you assign and vet their work? Would you ever kill something that they wrote?

Byrne responded:

PS In direct answer to your questions: the employees of DeepCapture are paid by DeepCapture, LLC. I founded DeepCapture and gave it its initial capitalization, but then withdreww as a member of the LLC, and am not an employee. Yes, I am a reporter for DeepCapture, but I do not get paid. I am neither an editor nor do I "assign" stories. Occasionally I see stories before they go live and give my comments (which they are free to accept or ignore as they wish), but more often, I do not see the stories before they go live. And you did not ask, but I'll tell you anyway: yes, I enjoy being a reporter. [emphasis added]

I guess he forgot he said that. What's the old saying, something about "a liar requires a good memory"? Note that he wasn't even asked if he owned Deep Capture. He volunteered that information, while ignoring most of the questions.

The problem with lies like this is that they violate the securities laws (Rule 10b-5, to be exact) by deceiving shareholders about a material aspect of the company. The SEC can't regulate the morality of corporate officers, but fraud definitely falls within its purview.

In its filings, Overstock has never admitted that it has a link to Deep Capture, and a Deep Capture web page to which Byrne links in his recent blog comment does not disclose that he owns the website. Instead, it makes the misleading statement that "it is not part of Overstock" and refers to the three creeps who churn out attacks as "co-owners."

No, not directly. But under accounting rules--admittedly not one of Byrne's strong points--he is required to disclose his ownership of Deep Capture. As blogger Sam Antar pointed out in a blog post last month, the Overstock-Deep Capture relationship is covered by Statement of Financial Accounting Standards No. 57 (SFAS No. 57) governing "Related Party Disclosures":

Statement of Financial Accounting Standards No. 57 (SFAS No. 57) entitled "Related Party Disclosures" provides some "examples of related party transactions" such as:

transactions between... (d) an enterprise and its principal owners, management, or members of their immediate families; and (e) affiliates.

SFAS No. 57 defines an affiliate as:

A party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an enterprise.

In addition, SFAS No. 57 defines control as:

The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an enterprise through ownership, by contract, or otherwise.

Furthermore, SFAS No. 57 defines related party transactions to include "services received or furnished" between such related entities. Deep Capture LLC furnishes services to Overstock.com in the form of retaliation against company critics.

I'm still uncertain that the SEC actually will take action against Overstock, but Byrne's admission on this point--especially considering that he's lied about this in the past--makes that possibility somewhat more likely.

UPDATE: It's not related to this, but Henry Blodget describes a problem he just experienced: the nauseating Judd Bagley appearing, unwanted, in his email box, which apparently is as pleasant as finding a dead mouse on the kitchen floor. "How do we get rid of him?" he asks. "You open up YOUR Buzz and see Judd Bagley tweeting at YOU and see how you feel about it."

Indeed. The only answer that comes to mind is the simplest: incarceration.

© 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.