Overstock.com Stockpiling Gold Just in Case
In case you've been pining for some Overstock.com coverage (oh, just admit it!), here's an update we've deemed worthy: On Overstock's last quarterly report to the Securities and Exchange Commission, the company listed $10.9 million in "precious metals" among its assets — $6.3 million in gold and $4.6 million in silver. The coins are stored […]
SEC Concludes That It Doesn’t Need to Kick Overstock.com on the Way Down
The financial gumshoes at the SEC have closed their investigation of Overstock.com and have concluded that no enforcement action is necessary. Naturally, former Arkham Asylum resident and current Overstock.com CEO Patrick Byrne sees this as a vindication: "We are the ones who brought all these matters to light, we made the corrections, we fully disclosed these […]
Confirmed: Overstock.com Is Doomed
Overstock.com has had its detractors over the years. Everyone from Barry Ritholtz to Felix Salmon to Joe Weisenthal to, of course, Sam Antar have been calling shenanigans on the company on everything from financial reporting to social media stalking. The company has made some dumb decisions and they seem to be willing to blame anyone and […]
Your Ernst & Young Entrepreneurs Of The Year Include the Dude From Groupon, Patrick Byrne
We really don’t pay much attention to the E&Y Entrepreneur thingamajigs because, well, it’s boring. Sure, we like entrepreneurs just fine but c’mon. These guys are filthy rich and successful and E&Y gives them trophies? Is this sort of commercial circle jerk really necessary? Regardless of our personal feelings, the awards are a big deal – Jay Leno hosted this year’s event for crissakes – and the Google News feed for E&Y is constantly clogged with stories about people advancing to the next round of voting like some sort of capitalist March Madness.
Anyway, Casa de Turley officially announced this year’s winners over the weekend and Reid Hoffman and Jeff Weiner, founders of Facebook for Suits LinkedIn, are your entrepreneuriest entrepreneurs.
In addition to the dynamic duo there are quite a few guys you’ve never heard of that are doing well for themselves including Roger Linquist and Jose R. Mas. See? Never heard of them, have you?
There are also some winners that you have heard of including Andrew Mason, one of the co-founders of virtual clipfest and increasingly looking insolvent Groupon. As well as Patrick Byrne, the founder of Overstock.com. You know, the guy on the Segway. The guy who Sam Antar can’t help to poke and prod every chance he gets. The guy whose company is being sued by seven California counties thanks to a Walmart sticker. The guy who may have had some weirdo trolling a bunch of bloggers’ Facebook friends. Yes, that Patrick Byrne.
But HEY! not every entrepreneur can be squeaky clean. It’s not like he’s Pete Rose or anything. Unless you count this.
[via E&Y]
Has an Auditor Ever Been Whacked For Snitching on Fraudsters?
I’ve gotten some crazy questions over the years but this one pretty much takes the cake. I’m not saying it’s stupid, nor am I saying it’s all that crazy, it’s just… well… out there, is all. Read on.
Dear Adrienne,
I’m a college student at the University of North Texas. Fraud has been a hot topic in my courses this month. We covered many scandals including Crazy Eddie, Barry Minkow, NextCard, Enron, and Bernie Madoff. This has got me thinking a lot about how I would react if I was in the shoes of the auditor. The students in my class always say to just report the fraud, however they never put themselves in the shoes of the fraudster to determine how the fraudster would act nor do they think about protecting the reputation o watched enough movies to know that if a fraudster finds out that somebody knows “too much,” then that person probably won’t make it home alive that night, unless they cooperate. I remember in that movie, “The Other Guys,” the auditing partner got killed because the fraudsters didn’t want him snitching out any information to authorities.
Another thing is that if it is found out that a partner is involved in fraud, this will ruin the firm’s reputation if this gets reported to the SEC. However, if the firm handles this internally, fire the partner, admit mistake, and let the public know that it doesn’t want anything to do with the partner, then perhaps only the partner would get in trouble and not the firm.
So exactly how are you suppose to act in situations of fraud? Of course AICPA tells us to first report it to your supervisor, then to the audit committee, and then the SEC. But still though, you got to get this out before someone kills you and you’ve got to handle it in a manner that best protects the reputation of the firm. Am I right? Also, have you ever heard of any auditors that were murdered because they knew too much? When you read about Enron or the Bernie Madoff scandal, there are talks about death threats, but you don’t necessarily hear about any murders involved. So it may be something that only happens in the movies.
Well, since you brought up Crazy Eddie, my first instinct was to pose this question to Crazy Eddie’s corrupt CPA, Sam Antar. Thankfully Sam obviously checks his Twitter account every five minutes and had some thoughts for me almost immediately.
“Yes, the potential is there. Depends on the client. Have that person contact me if worried,” he tweeted. Now isn’t that sweet? If anyone out there is feeling the heat, you know who to hit up.
His thought? It’s rare, if not impossible. Why would a fraudster whack the auditor? By the time the fraud is uncovered, it’s too late. The workpapers would likely document said fraud, so the fraudster would then be forced to whack the entire chain on up to the partner and who has time to do all that killing? “No logic in whacking outside auditor unless part of conspiracy,” Sam said.
That being said, does anyone remember Allen Stanford’s sketchy auditor C.A.S. Hewlett (“C.A.S.H.” get it?!)? He apparently kicked the bucket on January 1st (a real accountant would have kicked the bucket on December 31st, pfft), just a month before Stanford was charged with fraud (though he didn’t get arrested until June of that year). The circumstances surrounding his death were, uh, weird to say the least but I don’t think anyone is going to go so far as to say he got whacked.
Or how about Ken Lay? I mean, does anyone really believe he had a heart attack? There is even an entire website dedicated to exposing Ken Lay’s post-mortem life.
Now, here’s where it gets tricky, and I don’t expect you to know this since you haven’t made it out into the real world yet. What is an auditor’s job? Is it to uncover fraud? Or is it to verify with a minimum of certainty (a.k.a. “reasonable assurance”) that the financial information presented by a company is probably legit? If you answered the latter, you win. Forensic accountants dissect fraud, auditors simply check boxes. I’m sorry if this offends any of you hardcore auditors out there but in your hearts, even you guys know I’m right. Auditing is a joke, an intricate dance (read: performance) that exists more for entertainment than functionality. If you don’t agree with me, I’d be happy to name any number of companies that prove my point for me (let’s see… Enron, Worldcom, Overstock, Satyam, Olympus…).
What do you think the odds are that a first or second year auditor would even be able to detect fraud? Don’t you think the criminals behind it are at least clever enough to hide their wrongdoing from a bunch of fresh-faced kids with their SALY checklists? Look at the lengths Crazy Eddie went to – to success until their greed got the best of them and a chick ruined the whole scam. And that’s the thing, the auditors rarely uncover fraud, it’s usually the fraudsters themselves who end up exposing themselves though greed or just plain stupidity.
Whistleblowers don’t make friends but they don’t have to hire armed guards either. Like I said, by the time the fraud is exposed, it’s too late to start killing people to hide the truth.
And thanks to SOX, it is illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers, so a more likely scenario is that revelations of fraud will come from within the firm, not from the outside auditors who are pissed off to be doing inventory counts on New Year’s Day.
You watch too many movies, kiddo. Just check the list, collect the bank recs and call it a day.
Dumb: Overstock.com Paid $7 Million for the Oakland Coliseum Naming Rights
While still involved in a lawsuit (the one that came about because of a Walmart sticker) with seven California counties, including Alameda where Oakland resides.
From the Chronicle’s Zennie62:
Did the Oakland Raiders say anything? What about anyone with the City of Oakland or the County of Alameda. Did they even know that the County was involved against Overstock.com in this way?
Moreover, how could the San Francisco Bay Area print media, normally derisive of bloggers like myself, miss this legal issue?
So, to close, we have two problems with the Overstock.com, Oakland-Alameda County Coliseum Stadium Naming Rights Deal: it’s way under valued at $7 million, and the firm that’s on the other side of the deal is being sued by the same County of Alameda it’s giving money to, and for allegedly fraudulent business practices.
Overstock Buys Oakland Coliseum Naming Rights While In California Lawsuit [SFC]
Social Media Poses Enough of a Risk to Overstock.com That They Disclosed It in Their 10-K
It’s been quite some time since we picked up the Overstock beat but Gary Weiss picked up something in the company’s recently filed 10-K yesterday that makes us wonder if the company was shooting for irony or if they’ve given up on blaming the “shorts” turning instead to “social media,” which, similar to the anti-short campaign would allow them to encompass a number of villains without naming anyone directly.
From “Note 1A: Risk Factors” section of the company’s notes to the financial statements:
There has been a marked increase in use of social media platforms and similar devices, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of consumers and other interested persons. Consumers value readily available information concerning retailers, manufacturers, and their goods and services and often act on such information without further investigation, authentication and without regard to its accuracy. The availability of information on social media platforms and devices is virtually immediate as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning the Company may be posted on such platforms and devices at any time. Information posted may be adverse to our interests, it may be inaccurate, and may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also could be used for dissemination of trade secret information, compromise of valuable company assets all of which could harm our business, prospects, financial condition and results of operations.
As Gary points out, this disclosure is especially rich since Patrick Byrne had a goon using Facebook to stalk critics like Gary, Sam Antar, Barry Ritholtz among others which of course was disseminated in various social media outlets. Newsflash to Overstock’s risk managers: when people are being pursued by creeps on the Internet, they complain about to EVERYONE THEY KNOW.
One could easily argue that Segway accidents at the office pose just as great of a risk to key employees – and thus a disclosable item – but perhaps that’s covered under their D&O policy? It still seems plausible that disclosure would still be warranted. Additionally, the risk of a good snowfall might cause some of Salt Lake City-based company’s employees to call in sick to enjoy the fresh pow could have resulted in a late filing which is certainly something the SEC would want to know. We know KPMG has a crack squad of auditors all over this engagement but it’s conceivable that they overlooked some other risks. If you’ve got ideas on what those might be, let us know below.
A Walmart Sticker Leads to California Lawsuit Against Overstock.com
~ UPDATE includes link and quote from Overstock.com’s press release responding to the suit.
Gary Weiss is all over the $15 million lawsuit brought by seven California counties against Overstock.com today, noting that this could be a helluva problem for our fave SLC problem-child:
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 suit came out of some alleged false comparative advertising claims (e.g. think Crazy Eddie commercials) including this one that got investigators on the case:
It was a Cottonwood man’s complaints about the firm that persuaded prosecutors to investigate the matter, said Erin Dervin, a Shasta County deputy district attorney.
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.
Naturally, Overstock is saying that this one big misunderstanding and that isn’t how they do business. The prosecutors aren’t convinced:
The suit claims Overstock often outright makes up its list prices and compare-at prices based on arbitrary markups over the firm’s cost for the product. In many cases, Overstock entirely fabricated a fictitious comparison price and then claimed it was discounting that price, even when it was the only seller of the product, prosecutors allege.
You would think that such a troublesome lawsuit would cause havoc on the company’s stock price, wouldn’t you? Nope. Gary explains:
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?
UPDATE: Full statement from Overstock is available although Patrick Byrne is MIA:
“Overstock.com stands by all our advertising practices, including providing comparison values which we thoroughly explain on our site. We have been singled out for standard industry practices, which we look forward to demonstrating in court,” said Jonathan Johnson, President of Overstock.com.
Accounting News Roundup: Pols Line Up Against the Estate Tax; PCAOB Threatens to Stonewall Foreign Audit Firms; RubinBrown Forms LifeSciences Practice | 10.14.10
Estate-Tax Rises Again as Issue on Trail [WSJ]
“More than 250 current congressional candidates, mostly Republicans, have signed a pledge this year to support elimination of the tax, according to the advocacy group sponsoring the effort. The signers include 53 incumbents and more than half of Republicans running for House and Senate. During the 2008 elections, when the group first began seeking supporters, only 30 candidates signed up.
The estate tax has become a particularly hot issue in the West, including in Washington state’s Senate contest, and some rural House districts where Democratic incumbents appear vulnerable. a hotter issue in rural areas because it raises particular concerns among farmers and landowners.”
Religious group took alleged terrorist money [WaPo]
“A group of Ohio ministers has asked the Internal Revenue Service to investigate the organization that sponsors the National Prayer Breakfast because it received money six years ago from an alleged Islamic terrorist organization trying to finance illicit lobbying.
ClergyVoice, the activist group that wrote to the IRS commissioner Wednesday, complained that the Fellowship Foundation violated its obligation as a tax-exempt organization not to deal with such entities.
The foundation, an Arlington-based religious enterprise associated with a house at 133 C St. SE where several members of the House and Senate have rented rooms, acknowledged Wednesday that it had received two $25,000 checks, in May and June 2004, from the Missouri-based Islamic American Relief Agency.
The charity was included on a Senate Finance Committee list of terrorist financiers in January of that year.”
Dell’s Settlement of SEC Accounting-Fraud Claims Approved by U.S. Judge [Bloomberg]
“Dell Inc., the world’s third-biggest maker of personal computers, won a judge’s permission to pay $100 million to settle accounting-fraud claims brought by the U.S. Securities and Exchange Commission.
The accord reached in July allows founder Michael Dell to remain chief executive officer after paying a $4 million fine. U.S. District Judge Richard Leon approved the settlement today at a hearing in Washington.
Dell, 45, and the personal-computer maker failed to tell investors about “exclusivity payments” received from Intel Corp. in exchange for shunning products made by rival chipmaker Advanced Micro Devices Inc., the SEC said in a complaint filed in July. The payments allegedly helped Dell reach earnings targets from 2001 to 2006.”
US regulator threatens ban on Euro-firms [Accountancy Age]
“The US audit watchdog, the Public Company Accounting Oversight Board (PCAOB), is considering de-registering non-US audit firms based in countries where it has no power to conduct inspections, including Europe.
Rhonda Schnare, international affairs director at the PCAOB, said de-registering firms was one option on the table if nations did not co-operate with US audit inspectors.
‘Bringing enforcement proceedings against non-US audit firms is one option and the board is evaluating all of its options… The issue is one of the [PCAOB’s] highest priorities,’ she said.
‘The board cannot de-register firms without going through an extensive process that would involve bringing individual disciplinary hearings against the firms, and that is certainly one of the options the board has.’ ”
President Obama Proposes More Tax Credits for Higher Education [Tax Foundation]
“Even ignoring the possible issue of economic incidence and whether or not this credit would mostly lead to higher tuition instead of lowering the net price faced by students, one of the problems with this credit is the downside of tax credits known as “buying out the base.” The credit will indeed entice some additional amount of people at the margin to go to college. However, it will mostly give a huge windfall to those who were going to go to college in the first place. If more people in college is truly what you want, there are likely better ways to do it than via a refundable tax credit that doesn’t target those at the margin.”
Accounting firm RubinBrown forms team for life sciences [KCBJ]
“RubinBrown LLP, which is based in St. Louis and has offices in Kansas City and Denver, created the Life Sciences Services Group earlier this month.
The firm has identified about 15 existing team members to serve on the life sciences group, about five of whom are in Kansas City, said Todd Pleimann, managing partner of the firm’s Kansas City branch.
However, he said, the firm probably will add more to the team in the future, possibly hiring from outside.
‘We really feel that the life sciences, and particularly animal health, is really key for the Kansas City metropolitan area,” Pleimann said. “We know there is going to be a lot of growth in this area.’ ”
Does Overstock.com CEO Patrick Byrne Know When to Shut Up, Especially While the SEC Investigates his Company? [White Collar Fraud]
Apparently not.
Accounting News Roundup: The Problem with American Apparel’s non-CPA CFO; Diversity Still Lags in Accounting; Patrick Byrne Denies Insider Trading Accusations | 08.23.10
Potash says in talks for superior deals [Reuters]
“Potash Corp’s board urged shareholders to reject BHP Billiton’s hostile $39 billion offer and said it was in talks with a number of potential suitors for a superior deal.
Potash Corp, the world’s largest producer of potash based in the Canadian province of Saskatchewan, said superior offers or other alternatives are expected to emerge.
Discussions are on with several of these third parties in order to generate superior offers, the company said in a statement.”
How to Shine in a Skype Interview [FINS ying across the country for a second round of meetings, you may be asked to interview for a job from the comfort of your living room.
While it might sound less stressful to some than an in-person meeting, such an interview can be filled with landmines for job candidates.”
The Problem With a Non-CPA CFO [FEI Financial Reporting Blog]
Francine McKenna guest-posts over at FEI for the second time, this time discussing the American Apparel situation and noting that 31 year-old CFO might be in over his head.
Goldfarb Branham LLP Investigating Shareholder Claims Against American Apparel, Inc. [Business Wire]
Speaking of APP, investigations are starting, “Goldfarb Branham LLP is investigating American Apparel, Inc. (APP 0.75, 0.00, -0.09%) due to allegations that the company may have issued materially inaccurate statements to investors concerning its 2009 financial results and the circumstances surrounding the replacement of American Apparel’s auditor.”
Movement afoot to increase diversity in accounting industry [Pittsburgh Business Times]
“Sam Stephenson, a partner at ParenteBeard LLC, a Downtown-based certified public accounting firm, brings an interesting perspective to the equation as a black man who has worked in the profession for nearly four decades. During his long tenure, he has seen improvements in efforts to recruit and promote women in the profession, but ethnic diversity still lags behind.
‘We need to bring this issue to the attention of individuals who run local and regional firms because they may not be aware that this is a problem,’ said Stephenson, who serves as a member of the Pennsylvania State Board of Accountancy, which enforces the licensing rules for CPAs. ‘A lack of diversity often means missed opportunities to attract talent and clients.’ ”
Preparer Costs Will Increase Some; Taxpayer Costs Will Increase More [Tax Update Blog]
Joe Kristan responds to fellow practitioner/blogger Robert Flach’s question of how the new tax preparer registration will affect costs for consumers more so than tax preparers.
Gays See Complex, Changing Tax Picture [Dow Jones Adviser]
“Gay couples are taking one step forward, one step back when it comes to their tax rights. Not to mention sideways.
The shifting landscape of new rules and initiatives makes it a big challenge to provide same-sex partners with good tax advice.
In Massachusetts, a successful challenge to a federal law denying gays tax breaks that heterosexual couples get could mean progress, but only if it stands up to an expected government appeal.”
Patrick Byrne Refutes Insider Trading Claims [Forbes]
Live Blogging the Overstock.com Q2 Earnings Call
Your friendly Human Resources Professional Daniel W. Braddock will be joining me today for this particular Overstock powwow. He and I will be chatting live and I’ll be updating periodically. You can listen yourself by calling here: dial (866) 551-1816 and enter conference ID 90318167 when prompted and chime aniel: I’m in
President here we go
ahhhhh speaker phone.
it’s like these guys have never been on a conference call before
me: i’m not in yet
Daniel: you’re missing the legal mumbo jumbo
me: proceed with commentary until i get on
Daniel: He’s recommending having the q2 and 10Q/K available as references
Jonathan hands over to Steve
me: oh that’s a relief
Daniel: Revenue up 32% from q2 ’09 to ’10
gross margin way down
shocker
me: I’m on! And yes, it’s a snoozer so far but the balance sheet is sound! Whatever that means.
Daniel: slide deck? what slide deck?
off to slide 4 already?
help!
me: Jesus
I can’t follow this
Slide 5?
Anyone else having trouble keeping up?
Daniel: Who is this guy? Used the word “starch” to describe cash flow
Pretty sure he just tripped over slide five and fell on slide 6
whatever that mean
means*
3:11 pm me: Good grief
they’re talking GAAP
thin ice boys
very thin ice
Daniel: and no one knows if their numbers are an all-time high or not
me: well
Daniel: you have THREE years of numbers to remember
me: memory is a tricky thing if you’re on medication
i kid Patrick
I kid
Nothing but love
Daniel: Pretty sure slide 10 was removed from the presentation…
me: You’re looking at the slides?
Daniel: From an HR/public speaking perspective this man is atrocious
3:15 pm; me: Christ
the customer satisfaction poll
again?
Old news guys
Daniel: When you only have a few cards in your back pocket, you must re-use
Daniel: Have you ever purchased anything off of Overstock.com?
me: God no
Patrick is wrapping up already
Daniel: Is he wrapping up or is he getting the hook?
me: Btw, Sam is live tweeting the call, you can follow it here:
Daniel: IS THE WINDOW OPEN??
me: http://twitter.com/SamAntar
Daniel: I HEAR TRAFFIC OUTSIDE
me: “there’s not a person in this company that knows what Wall St.’s numbers are”
That’s amazing
Shareholders are you listening?
me: Questions
coming up
Bueller?
Bueller?
Jesus
no questions?
Daniel: You need investors first
me: Matt Schindler
BofA
or maybe not
who is this guy?
Daniel: Trends in spending
on Overstock? Try suits from 1997
me: Apparently Sam’s phone number is blocked
Sam, I hate to say it but I’m not surprised
Intelligence on the site?
Come on people
Is that it?
“it’s nice talking to smart owners”
End of call
Jesus man
Daniel: That was painful
me: Thoughts?
is there a holiday today that I’m not aware of?
Daniel: I simply think people do not care about the current state of this company
from a management perspective – good LORD were they unorganized.
Byrne spoke like he was conversing with close colleagues: lingo was very internalized; assumptions about background were made.
How you are not able to call on basic numbers from two years ago boggles my mind as well.
me: They blocked off an hour for that?
I feel gypped.
Not even 30 minutes
I think we were on to something skipping the Q1 call
Daniel: Welcome to Wall Street in August
me: Good point
See you for Q3 I guess
Maybe Sam will have more on this dumped stock
by then
Daniel: Here’s hoping.
Sam Antar Respectfully Requests to Be Included in the Overstock.com Earnings Call
Sam is certainly as insightful as the Easter Bunny:
From: Sam E. Antar
To: Patrick Byrne
Board – Jonathan Johnson
Joseph TabaccoDear Patrick Byrne and other persons from Overstock.com:
Overstock.com’s Q2 2010 conference call is scheduled for today at 3 PM ET. I will be calling in. I expect to be permitted to participate in said call and ask relevant questions about Overstock.com. As I recall, in 2005 you allowed a lay person named Phil Saunders AKA Easter Bunny to participate in the call.
Sam E. Antar
Gary Weiss predicts that Sam won’t be allowed to participate but stranger things have happened (e.g. Overstock turned a profit last year).
Earlier:
Remember the $3 Million in Overstock Shares Patrick Byrne Sold? Sam Antar Does
Remember the $3 Million in Overstock Shares Patrick Byrne Sold? Sam Antar Does
Last we heard from Patrick Byrne, the Overstock.com CEO and Farmville enthusiast, he had just disposed of 140,000 shares of OSTK via High Plains Investments, LLC, an entity 100% owned by PB. This had a few people scratching their heads, including us.
At the time, we wondered why Patsy would need to dump the shares, especially after all the excitement the company generated by turning their first profit ever in 2009 and a profitable Q1. We were hoping that the KPMG engagement team – that was doing such a bang-up job – would get some new Segways to cruise SLC but pesky independence rules probably got in the way of that.
Regardless, Q2 wasn’t expected to be a showstopper but when asked, Patsy wasn’t worried, telling Investor’s Business Daily, “Given that in 2009 we had close to $40 million of free cash flow (and $8 million net income), I think we should just continue building the intrinsic value of the business right now.”
Well! The Company reported its Q2 earnings after the close yesterday and, um, they missed the numbers badly. The $0.02/share loss expected by analysts was tripled with a loss of $0.06/share. As you might expect, the shares are taking a beating and Byrne nemesis Sam Antar finds this just a little bit fishy:
[N]ine days after Q2 2010 ended, Byrne led investors to believe that Overstock.com was going to break even in that quarter by citing previous year’s free cash flow numbers. However, Byrne did not mention that Overstock.com’s free cash flow for the six months ended June 30, 2010 was negative $54.8 million compared to negative $35.8 million in the previous year’s comparable perid [sic] or about $19 million lower.
So, there’s that. OH! And the $3 million in shares. Don’t forget that.
Overstock.com CEO Patrick Dumped Stock Ahead of Bad Earnings Report and Misled Investors About Earnings [White Collar Fraud]
Were PwC and Grant Thornton Ignoring Overstock.com’s Accounting Issues?
Yesterday we briefly picked up the Overstock beat as Sam Antar pointed out that everyone’s favorite Salt Lake City resident got a little confused about when they knew about their gain contingency existed that resulted in some contradictory disclosures.
As you may misremember, this arose from the company for recoveries from underbilled fulfillment partners by improperly claiming that a ‘gain contingency’ existed under accounting rules.”
Now Sam has pointed us to some correspondence between the SEC and Overstock that indicates that PwC wasn’t concerned about the issue until the Commission pointed it out and succeeding auditor Grant Thornton was unmoved until Overstock brought it up:
Please tell us if, and the extent of, your auditors’ national accounting office involvement in these issues during audit of your 2008 financial statements or the reviews of your fiscal 2009 quarterly filings.
PwC served as our auditor during the audit of our 2008 financial statements. PwC has informed us that it did not consult with its national accounting office regarding the above issues when they were identified in Q4 2008 or Q1 2009. However, in connection with this response to your letter dated November 3, 2009, PwC has consulted with its national office in regard to both the fulfillment partner under billing and partner overpayment issues and based on context of this being an area that is a highly facts and circumstances based issue that requires significant judgment where reasonable parties have different views, PwC continues to concur with our accounting and disclosure consistent with its reflection of the underlying economics and our past practices of not billing or collecting for our billing errors, rather negotiating for future price concessions that were contingent on future sales.
Grant Thornton (“GT”) reviewed our Q1 and Q2 2009 quarterly filings. To our knowledge the GT local engagement team did not review these issues with its national accounting office at the time of our Q1 and Q2 2009 quarterly filings. In early October, as we prepared our response to your October 1 letter, we asked GT for its national office’s opinion. It was our understanding at the time that GT’s national office concurred that we had used an appropriate (if not preferred) accounting treatment. Only after we received your November 3 letter, did we become aware that GT’s previous “national office” opinion had in fact been an “informal request” only, and not a “formal request.”
In the case of PwC, it’s entirely possible that they just trusted that OSTK knew what they were doing and went along with it. Obviously a huge mistake. When the SEC came calling however, they moseyed through it again and rang up the accounting wonks at 300 Mad.
But the Grant Thornton engagement team, who came in after all this went down was seemingly on board with it without consulting with its own national accounting gurus even though the SEC was already on this like stink on a monkey. GT making an “informal request” of its national office on an SEC inquiry seems a little tepid.
HOWEVER! You have to remember that this is all in the words of Overstock which hasn’t always been forthcoming/reliable/truthful in its filings. Then again, maybe there’s something to this whole auditor “Yes men” thing.
Accounting News Roundup: G-20 to ‘Stabilize’ Debt by 2016; Auditors May Be Forced into Whistleblower Role on Banks; Yes, Taxes Are Historically Low | 06.28.10
G-20 Agrees to Cut Debt [WSJ]
“The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and ‘stabilize’ their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.”
Once you catch your breath from laughing, the President also cited the tax code specifically and his threatening to put some (i.e. Congress) in a tight spot:
“They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year 15, would be at an “acceptable level.” President Obama said that next year he would present “very difficult choices” to the country in an effort to meet deficit goals.
The president cited his disappointment with the U.S. tax code. ‘Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, ’cause I’m calling their bluff,’ Mr. Obama said.”
Bank auditors eyed for whistleblower role [FT]
A paper from the UK’s Financial Services Authority puts forth the discussion of requiring auditors to work more closely with regulators on irregularities found during the bank’s audit engagement.
“Experts say bank executives are nervous about the prospect of increased bilateral discussions between regulators and auditors. Auditors have been fearful the paper could thrust the profession into a regulatory spotlight it has so far avoided.”
Koss Fraud: We didn’t bother to look at the endorsements on our own checks, but Grant Thornton should have! [Fraud Files Blog]
Fraud sage Tracy Coenen presents her latest view on the Koss fraud mish-mash and how Koss management has managed to make themselves “look like absolute morons.”
BP Loses $22 Billion in Legacy of Share Buybacks [Bloomberg]
“The sum represents the hole after the 52 percent plunge in BP shares since the Deepwater Horizon exploded and sank, resulting in the worst oil spill in U.S. history. BP bought back more than $37 billion of its stock in a bid to return money to investors between 2005 and 2008. Those shares are now worth $15 billion, excluding dividends.”
Martin Ginsburg, Noted Tax Lawyer and Husband of Justice Ginsburg, R.I.P. [ATL]
Mr Ginsburg was a tax law professor at Georgetown for many years and was known for his great sense of humor, as evidenced by his faculty bio, noted by our sister site, Above the Law:
Professor Ginsburg is co-author, with Jack S. Levin of Chicago, of Mergers, Acquisitions, and Buyouts, a semi-annually updated treatise which addresses tax and other aspects of this exciting subject. The portions of the treatise written by Professor Ginsburg are, he is certain, easily identified and quite superb.
Open Letter to the Securities and Exchange Commission Part 9: Overstock.com’s Excuses Simply Don’t Add Up [White Collar Fraud]
It appears Sam Antar has caught Overstock.com in another disclosure snafu but this time it isn’t really clear whether the company gave the wrong excuse, lied to the SEC or simply doesn’t know what they’re doing, “Overstock.com’s 2008 10-K report claimed that a reportable “gain contingency” existed as of November 7, 2008. However, the company contradicted itself and claimed to the SEC reviewers that reportable reportable ‘gain contingency’ did not exist on November 7, 2008.
If Overstock.com’s 10-K disclosure is true, the company’s explanation to the SEC Division of Corporation Finance can’t be true. Likewise, if Overstock.com’s explanation to the SEC Division of Corporation Finance is true, the company’s 2008 10-K disclosure can’t be true.”
Accounts bodies revise workplan [FT]
Convergence 2.0.
Today’s taxes aren’t too bad [Don’t Mess with Taxes/Kay Bell]
Kay Bell provides some perspective on tax rates over the last century. The following graphic should help clear up any confusion.
BP unlikely to cancel dividend, but mulls several ideas: source [Reuters] Auditors to reveal bank talks under new plans [FT] The Big 4 have historically resisted these types of proposals, arguing that it will expose them to additional legal liability. Suggestions cited include assurance on the “front half of annual reports,” as well as an audit of the banks’ summaries of risks. The ICAEW said it was aware that this would add to the auditors’ workload. Ernst & Young had issued a going concern opinion for the company back in February, warning that continued lack of cash flow would have to be remediated quickly for any possibility for the continuation of the business. How the New Wealth Taxes Will Hit You [WSJ] The 0.9% tax is on any wages over $200k/$250k. For example, if you are single and made $300,000, your additional tax would be $900. Similarly, the investment income tax would tax any investment income in excess of the $200k/$250k threshold and the 3.8% tax would be applied. What’s investment income you ask? Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don’t participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above. Income that is not considered investment income include: distributions from IRAs, pensions and Social Security, annuities that are part of a retirement plan, life-insurance proceeds, muni-bond interest, veterans’ benefits, and income from a business you participate in, such as a S Corporation or partnership. KPMG considering move to 1801 K [Washington Businsess Journal (subscription required)] Open Letter to the [SEC]: Why You Must Review Medifast’s Revenue Accounting Disclosures [White Collar Fraud]
Accounting News Roundup: BP Weighing Options on Dividend; Will the “New Wealth Taxes” Affect You?; Medifast Keeps Things Vague | 06.14.10
They may defer it, pay it in shares or “pay into a ring-fenced account until the oil spill liabilities become clearer.” All of which will please absolutely no one.
Proposals by the ICAEW would require auditors to disclose their private discussions with bank audit committees afte showed that “the value of bank audits had shown investors especially were dissatisfied by the audit report. The internal process involved was perceived as helping to keep bank executives in check, but investors felt the report was only a box-ticking exercise.”
Vantis trading suspension follows difficult financial period [Accountancy Age]
The court-appointed liquidator for Allen Stanford’s bank, Vantis, has had trading of its shares suspended by the AIM after the company was unable to obtain any funds for their services related to the Stanford case, among other financial difficulties.
Are you one of those “rich” people? That is, do you have an adjusted gross income of $200,000 or more ($250,000 for joint filers)? If so, you’ll probably want to know that two new tax levies will come your way in 2013 as a result of the new healthcare legislation – a 0.9% levy on wages and a new 3.8% tax on investment income.
KPMG might move their Washington, DC office location to 1801 K St. NW from 2001 M St. NW according to “real estate sources.” KPMG’s spokesman said that the firm is continuing to “examine all of our options.” The situation is fluid.
Sam Antar would like to put the SEC on notice that Medifast seems to be less than transparent when it comes to its disclosures, “it seems that Medifast is recognizing revenue upon shipment and not delivery. As a minimum, Medifast, like Overstock.com, should be required to expand and clarify its disclosures to avoid confusing investors.”
Why Did Patrick Byrne Sell $3 million in Overstock.com Shares?
So Patrick Byrne (via his 100% wholly owned entity High Plains Investments, LLC) sold 140,000 OSTK shares in the past five days and that has a few people talking/wondering aloud about what the hell is going on.
Barry Ritholtz, who is long OSTK (quantitative drivers) despite, “I…think it is a steaming pile of shit, that the CEO is an asshole, and that the entire company is probably corrupt,” is really curious:
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?
These are all excellent jumping off points (although we disagree with the notion “I doubt anyone could be that dumb”) but let’s explore other possibilities:
A) Segways for the KPMG audit team.
B) Reverse Psychology – he’s done fighting the short selling crowd (or is he?)
C) He’s going to apologize to Sam Antar monetarily (how generous he will be, is another matter entirely).
D) He needs some cash for a Father’s Day gift.
E) Needs to feed the Farmville addiciton.
These are merely some ideas. And there’s always the possibility that PB has gone right out of his mind. Share your own, should you feel inclined.
Long OSTK, Short Byrne [The Big Picture]
Proxy Statement/Schedule 14A [SEC.gov]
Patrick Byrne Pockets $3.1 Million from Dumping Overstock.com Shares [White Collar Fraud]
Patrick Byrne Dumps His Overstocked Overstock Shares [Gary Weiss]
Accounting News Roundup: Dissecting Overstock.com’s Q1 Earnings; The “Audit the Fed” Drum Still Has a Beat; AMT Patchwork Continues | 05.05.10
Can Investors Rely on Overstock.com’s Reported Q1 2010 Numbers? [White Collar Fraud]
Sam Antar is skeptical (an understatement at best), that Overstock.com’s recently filed first quarter 10-Q is reliable and he starts off by citing their own words (his emphasis):
“As of March 31, 2010, we had not remediated the material weaknesses.”
Material weaknesses notwithstanding, Sam is a little con pany’s first quarter $3.72 million profit that, Sam writes, “was helped in large part by a $3.1 million reduction in its estimated allowance for returns or sales returns reserves when compared to Q1 2009.”
Furthermore, several one-time items helped the company swing from a net loss of nearly $4 million in Q1 of ’09, including nearly $2 million in extinguishment of debt and reduction in legal expenses due to a settlement. All this (and much more) gets Sam to conclude that OSTK’s Q1 earnings are “highly suspect.”
UBS Dividend in Next 2-3 Years ‘Symbolic’: CFO [CNBC]
UBS has fallen on hard times. The IRS, Bradley Birkenfeld, a Toblerone shortage and increased regulation and liquidity requirements have all made life for the Mother of Swiss Banks difficult and CFO John Ryan told CNBC that could hurt their ability to pay their usual robust dividend, “They (capital regulations) are essentially rigorous to the extent that it is unlikely we’ll be able to pay anything other than a very symbolic dividend over the next two or three years,” Cryan said.
While that is a bummer but a “symbolic” dividend is still an improvement over “we’ve recently been informed that the Internal Revenue Service and Justice Department will be demanding that we turn over the names of our U.S. clients.”
Effort to expand audits of Fed picks up steam in Senate [WaPo]
Going after the Fed makes for good political theatre (*ahem* Ron Paul) and rhetoric to fire up the torches of the populist masses. The “Audit the Fed” drum continues to be beaten by the likes of Rep. Paul (R-TX) and Senator Bernie Sanders (I-VT) to much success and Sanders is quoted in the Washington Post as saying “We’re going to get a vote.” Pols want to crack open the books at the Fed to find out what the ugliest of the ugly is inside our Central Bank.
Ben Bernanke isn’t hot on the idea because letting the GAO sniff around may expose the Fed to short-term political pressures. For once AG – not a fan of the Beard per se – sides with BSB. As she said last fall:
It’s right there in the footnotes – pulling out the closest Fed annual report I’ve got (Richmond Fed 2007), both Deloitte and PwC agree that the Fed is a special case in Note 3: Significant Accounting Policies:
“Accounting principles for entities with unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies.”
The note goes on to explain why government securities held by the Fed are presented at amortized cost instead of GAAP’s fair value presentation because “amortized cost more appropriately reflects the Bank’s securities holdings given the System’s unique responsibility to conduct monetary policy.” Right there, you can see why auditing this thing might be a problem.
This might be one of those “careful what you wish for” scenarios.
Why We’re Going to Keep Patching the AMT—And Why It Will Cost So Much [Tax Vox]
The Alternative Minimum Tax has been a unmitigated failure in the eyes of many tax wonks. Congress has been talking reform in this area for some time and yet, the AMT remains largely unchanged, relying on temporary fixes that could eventually turn into a disaster:
Last year, about 4 million households were hit by the tax, which requires unsuspecting taxpayers to redo their returns without the benefit of many common tax deductions and personal exemptions. That would jump to 28.5 million this year, except for what’s become an annual fix to the levy, which effectively holds the number of AMT victims steady.
Here’s what happens if Washington does not continue that “temporary” adjustment. If Obama gets his wish and extends nearly all of the Bush taxes, the number of households hit by the AMT would soar to more than 53 million by the end of the decade—nearly half of all taxpayers. AMT revenues—about $33 million last year—would triple this year and reach nearly $300 billion by 2020. That is a nearly 10-fold explosion in AMT revenues.
Howard Gleckman argues that the AMT is too big of a political threat to let members of Congress let this sneak by and that the patchwork will continue but that it probably shouldn’t, “The President can assume the AMT will be patched indefinitely, but assuming won’t pay the bills. Unless he is willing to raise other taxes or cut spending to pay for this AMT fix, he’ll have to borrow more than $1 trillion to kick the can down the road for the rest of this decade.”
Live Blogging the Overstock.com Earnings Call
4:57: Everybody ready to do this? We exchanged an email with Sam Antar a little bit ago and he says he never gets on the call so we know he’s listening along. Sam, can’t you get one of those things that will disguise your voice and that makes it sound like your voicebox was removed?
5:00: Slides are working but These Salt Lake City people need to get their act together.
5:02: Jonathan Johnson in the hizzous! Dr. Patrick is in attendance and Steve Chestnut. Yeah, that 10-K was two weeks late, Johnnie. You should probably mention that. Non-GAAP financial measures? You mean the whole 10-K? We kid, we kid.
5:03: Chestnut gets on and he name drops KPMG. Thanks Klynveldians for making this a virtually painless process. Chesty agrees with Patsy’s sentiments that he’s sorry for the delay but appreciates your patience throughout this whole mess.
Oh boy. Accountants getting thrown under the bus. They’re hiring new people though. Ones that have appropriate training in debits and credits. Hell, they’ll throw in some internal audit people too. Progress is being made, make no mistake.
5:07: Patrick Byrne is up! He’s stoked to be here. Going through the numbers and Patsy mentions that Johnnie Johnson never sounds bored while going over the minutiae. “ALL IS GOOD!” Stalling…Skips an entire slide for some reason (probably not important). Pat doesn’t know what the future holds. That’s deep man. He’ll stop talking about the future now. You know who Patrick cares about? The consumers! He’s passing savings on to you, the American people and Overstock shoppers.
5:11: This thing is generating cash, sayeth Chestnut. Jesus, we are cruising through these slides. Think he’s skipping over anything? An investment banker told Patsy that “profit is noble.” He thinks its Chinese or something. Definitely not Nietzsche. Pat likes LL Bean, btw. Johnnie Johnson is back on. Just because LL Bean is a great company doesn’t mean OSTK isn’t going to try like hell to be numero uno in customer satisfaction.
Okay, these guys really like LL Bean. Patrick is talking about duck boots and grandpas now. Really profound stuff here. Did they mention they were above Amazon, Zappos, etc?
5:15: No reason to read slide 13…moving along, moving along. Patrick is reminiscing about someone at Allen & Co. who said something smart at one time in the past. Not really going anywhere…Yes. Please keep up the abrupt stops and starts. Johnnie do you want to chime in? Pat says they have tight expense controls. This must be the one area of the company where controls are just a-okay. $46 million in cash flow is nothing to sneeze at people. Patrick still doesn’t want to talk about the future.
5:19: Questions. Matt Schindler/BofA (sorry if I butchered the spelling): nice revenue number guys. How’d you do it? Great question, sayeth Patrick. Patrick can’t believe this didn’t happen three years ago but hey, whatever. ’09 wasn’t so hot compared to other years because you know, it pretty much sucked for everybody.
What about gross margin? Patsy said that 20% gross margin was too high and was going to give it back to customers? Now it’s 17% WTF? Are you doing customers a favor or did you get hammered by the seasonal whathaveyou? Patsy says that OSTK wants to be cheaper than everybody in the entire universe, so hell yeah, they’re passing it on to the consumer.
5:26: WE ARE NOT TALKING ABOUT THE FUTURE! Do you know what the future holds? We sure as hell don’t but chances are it involves the SEC so we’re not going there. END. OF. STORY.
The book of this company will be written one day and chapter one will be human development. Who will write this book? Patrick? Robby Boyd? Floyd Norris? Good God, when is this BofA guy’s turn over? One final question: Q1 is the past so that’s technically not the future so how is it??
Patrick says that you may have heard that he was in some hot water, so Q1 actually is the future, thankyouverymuch. Next question.
5:30: Patrick’s fraternity brother is next up and they compliment each other for being such swell guys. Patrick especially likes his buddy’s Minnesota accent. Sounds like Johnnie is running the show because Patrick says that he’s the one insisting that Patrick keep his piehole shut about the future.
5:35: Jesus, Marge Gunderson asks another snoozer of a question. Patrick plugs another book that no one has ever heard of called “The Dick” or something.
Marge Gunderson: Any litigation? – Johnnie will handle this. Prime brokers are going down in September of 2011. Byrne can’t help himself and blurts out that the it will be the OJ Simpson trial of the financial world. That’s nice. Murder. The murder of OSTK.
Hey! What about those Q1 earnings?? It’s still TBD but we’re tentatively shooting for late April. KPMG has been burning the midnight oil! Patrick is singing their praises right now. They’re a great crew. Not like the hacks at Grant Thornton. Herculean effort KPMG. Props. Tons of props. Nice job team. No plans for you to be fired.
5:42: Tom O’Halloran from an bank I’ve never heard of. Byrne claims that the OSTK is part of the American psyche now. Coca-Cola, Baseball, and Overstock.com. Steve Chestnut number drops $900 million in revenues. That’s almost a billion! But we’re still kind of small, we’re not delusional. Johnnie knows that Americans see OSTK as a real alternative for stretching their nickel.
Patrick is now talking macro-econ now and we’re totally disinterested. Btw, did you notice that OSTK is the only discounter on the customer satisfaction survey?
5:48: Talking inventory…What about cash levels? You’ve got about $140 mil in cash. Is that enough? What do you like to see in the future?
Patrick says if working capital drops $30 mil they’re in deep shit. Since this involves the future, Johnnie Johnson takes over and Patrick shuts his trap.
5:51: A emailed question from fellow named Nick whose last name is being withheld to protect him. Weird. He wants to know about patent infringements. Jesus, are Sam’s questions going to get asked or not? The Company will fight these tooth and nail. Johnnie will fight these suits dammit. No settlements. It’s about principle, after all.
Michal Ungai (sp?) is up. Something about future depreciation. Patrick asks Johnnie for permission to answer the question, so it must be serious. Are we talking about this?…stand by…If you’re assuming what we are, then you’re good to go.
5:58: Johnnie says time is up so everybody beat it. Patrick says KPMG needs to get the Q1 done and then they can go on vacay. That’s reassuring.
Overstock.com Blames Restatements on Accountants
Last week the financial three-ring circus Overstock.com officially put an end to its 2009 by filing its 10-K with the SEC (after a two week extension). Ring managed to keep his promise about turning a profit and managed to keep his head about it in his letter to shareholders only mustering, “It’s nice to be profitable.”
As you might expect, Sam Antar was not impressed and since the Company’s filing he and others (including Gary Weiss) have pointed out major internal control problems, mistakes in the footnotes, false disclosures related to an alleged “tax dodge” and now, NOW the most unforgivable thing yet.
Sam notes that the Company, in its infinite wisdom, has decided to blame its own accountants and their lack of knowledge for the most recent restatement in its 10-K:
We lacked a sufficient number of accounting professionals with the necessary knowledge, experience and training to adequately account for and perform adequate supervisory reviews of significant transactions that resulted in misapplications of GAAP.
Information technology program change and program development controls were inadequately designed to prevent changes in our accounting systems which led to the failure to appropriately capture and accurately process data.
These are the only two “control failures” identified by the Company in its filing that constitute material weaknesses. Naturally, the management team and the audit committee agreed with this assessment, “Our management concluded, and the Audit Committee of the Board of Directors agreed with management’s conclusions,” that former CFO David Chidester and former Treasurer Rich Paongo are the ones at fault here.
Is that class or what? So did Patrick Byrne finally realize that David Chidester and Rich Paongo, after several years at Overstock, lacked the “necessary knowledge, experience and training” so they and the Company “parted ways” (aka fired their sorry asses) for the latest restatement? What about the previous umpteen restatements? Why wasn’t didn’t the parting of ways occur after those?
Regardless of the answers to these questions, Sam has appealed to none other than Mary Schapiro to make sure the shenanigans don’t continue:
From: Sam E. Antar
Sent: Monday, April 05, 2010 3:56 AM
To: ‘Mary Schapiro’; ‘[email protected]’;
Cc: ‘Patrick Byrne’; ‘Joseph Tabacco’; ‘Board – Jonathan Johnson’
Subject: Open Letter to the Securities and Exchange Commission (Part 8): Bring Enforcement Action Against Overstock.com for False and Misleading Disclosures
Importance: HighTo Chairperson Mary Schapiro:
Enclosed is a link to my blog post entitled, “Open Letter to the Securities and Exchange Commission (Part 8): Bring Enforcement Action Against Overstock.com for False and Misleading Disclosures.”
Link here: http://whitecollarfraud.blogspot.com/2010/04/open-letter-to-securities-and-exchange.html
The blog post referred to in the link above, is to be considered a formal complaint to the SEC for continued false and misleading disclosures by Overstock.com and its officers. Please note that as a courtesy, I have cc’d Overstock.com on this email.
Respectfully,
Sam E. Antar
Is the SEC not interested in a slam dunk case? We’ll see.
Overstock.com Turns a Profit; Patrick Byrne Writes a Very Un-Patrick Byrne Letter to Shareholders
This morning we thought the KPMG audit team working on Overstock.com would continue slaving away through the extension deadline tomorrow to get that beast of 10-K finished. Well! Turns out they’ll be t of you tonight because the OSTK 10-K has been filed and, as promised Overstock shareholders, your humble servant Patrick Byrne and Co. are reporting an annual profit for the first time ever!
After such a high, restatement or not, we’re guessing Sam Antar definitely won’t be getting an apology but Gary Weiss has already noted a couple of 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.”
First off, we share Gary’s shock — SHOCK! — on the insufficient internal controls revelation. Second – AUDITORS! We talked about this, remember? Read the 10-K carefully. Overstock’s “Risk Factors” section runs 25 pages for crissakes. A million fucking clams can’t get missed!
You know what though? Mistakes happen, so we’ll let it slide.
Oh, and about that letter to shareholders. Patsy doesn’t bring up former auditor Grant Thornton once, doesn’t quote Nietzsche, compiain about short sellers, bring up Facebook, or say anything remotely antagonizing (although on page 32, the Company’s states he still might).
This makes think: 1) Is he not feeling well? 2) We want the old Patrick back! Read for yourself:
Dear Owner:
In Q4 our revenues grew 27%, twice the ecommerce industry’s rate, and we earned $12.7 million in net income. In 2009 we grew revenues 6%, earned $7.7 million in net income, generated $46 million in operating cash flow, and generated $39 million in free cash flow. It’s nice to be profitable.
I am proud that, for the second year in a row, we rank number 2 in the NRF/Amex survey of American consumers, behind only LL Bean and ahead of Amazon, Zappos, eBay, Nordstrom, and many other fine firms.
As you may know, at the end of Q4 we engaged KPMG as our independent auditors, and announced that we were restating our FY 2008 and Q1, Q2 and Q3 2009 financial statements. 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.
I look forward to our conference call next Monday. Until then, I remain,
Your humble servant,
Patrick M. Byrne
Accounting News Roundup: Treasurer Is Not a Disclosure-Worthy Position at Overstock.com; SEC Investigating Repurchase Accounting; Deloitte Considers Camping at World Financial Center | 03.30.10
• Another Key Departure at Overstock.com: It Went Unreported, Too [White Collar Fraud]
Criminal-turned-forensic sleuth Sam Antar is reporting on his blog that SEC problem child Overstock.com had another key employee depart the company but this time, the Company failed to report it publicly. Gary Weiss was tipped off about the departure of Richard Paongo, the former Treasurer at OSTK, in an anonymous post that was confirmed on Mr Paongo’s LinkedIn profile.
It appears that Mr Paongo’s departure occurred around the same time as ex-CFO David Chidester’s which was reported to the SEC.
Sam notes the requirements of an 8-K disclosure:
If the registrant’s principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, or any named executive officer, retires, resigns or is terminated from that position, or if a director retires, resigns, is removed, or refuses to stand for re-election (except in circumstances described in paragraph (a) of this Item 5.02), disclose the fact that the event has occurred and the date of the event.
So maybe OSTK figured that Paongo’s was worth sharing with investors? Sam says, “Apparently, it’s Overstock.com’s position that none of the above applies to Rich Paongo. However, Paongo’s departure from Overstock.con [sic or maybe not?] can be viewed as a material event requiring disclosure amid an expanding SEC investigation and given Paongo’s role at the company.”
Whether or not Paongo’s departure qualifies as a disclosable event might be arguable but the timing of his departure is certainly noted. In semi-related news, Overstock still has a couple of days before the 10-K extension runs out, so we’re likely to hear more out of SLC.
• S.E.C. Looks at Wall St. Accounting [NYT]
With Repo 105 on everyone’s brain, the SEC figured it should snoop around and see who else is using the repurchase agreements. Bank of America and JP Morgan have already admitted that they use repurchase agreements but Mary Schapiro remains coy about what companies are getting the crook-eye.
• Deloitte eyes sticking with World Financial Center [Crain’s New York]
Deloitte is in the market for about 600,000 square feet to house some its New York employees and one possibility is that the firm will set up camp at World Financial Center where it is currently the largest tenant. The firm is also reportedly considering 825 Eighth Ave.
Crain’s reports that Casa de Salzberg was looking for 1 million square feet last year, considering possible locales at 11 Times Square and 277 Park Ave. Deloitte insists that it was never looking for 1 million square feet and will be perfectly happy to cram the employees from the current two non-WFC locations into one place.
Accounting News Roundup: Satyam Auditors Barred by PCAOB; TheStreet.com Pulls an Overstock.com; How High Are Your State’s Property Taxes? | 03.18.10
• US accounting watchdog sanctions Satyam’s auditors [Reuters]
Siva Prasad Pulavarthi and Chintapatla Ravindernath, the two auditors that were arrested in India for their roles in the Satyam fraud, have been barred by the PCAOB from “being an associated person with a registered accounting firm.”
The Board who released the two orders against the men on Monday, that describe their efforts to get them to testify about their roles in the engagement last spring but they refused to cooperate, “After several attempts to accommodate Respondent with respect to the dates and location of testimony, including a delay to allow new counsel to become familiar with the matter after Respondent changed counsel, Respondent, through counsel, informed the Division in January 2010 that he would not comply with the Demand for testimony.”
• TheStreet.com To File Annual Report Late On Accounting Review [WSJ]
TheStreet.com announced yesterday that it was pulling an Overstock, delaying the filing of its 10-K for 2009. The Company, founded by sound effects specialist Jim Cramer, said that in a filing that it and Marcum (its auditor) needed to “focus attention on matters related to the Company’s previously-announced review of the accounting in its former Promotions.com subsidiary.”
In other words, the SEC is snooping around the accounting which typically is not a good sign (just ask Jim!). Despite this little bump in the road, the company assures everyone that it will “be able to file its 2009 Form 10-K on or before the fifteenth calendar day following the prescribed due date.”
• Lowest and Highest Property Taxes [Tax Policy Blog]
This map, courtesy of Tax Policy Blog, shows Texas claiming top prize for highest property tax (as a % of median home value), with New Jersey not far behind:
The Latest Developments in the Overstock Accounting Mess
In case you haven’t been paying attention, this has been a banner week for the alleged but fairly obvious and ongoing Overstock.com accounting drama (aka “The Quarterly Lie”) and now’s your chance to get caught up. Thank me later (unless you are Patrick Byrne, in which case you are welcome to trash me later out of pure, outraged butthurtedness).
Gross violations of the sanctity of GAAP are not the largest of Overstock’s numerous accounting issues. I know, how could it get any worse? Sam Antar discovers GAAP violations both new and old in this, the latest hilariously fraudulent SEC filing by our friends at OSTK. What makes it even funnier is that they apparently attempted to slip in the new violations with old ones in the hopes that the SEC (and those of us paying attention) may not notice.
Overstock.com nonchalantly lumped in its latest GAAP violations with other GAAP violations previously disclosed by the company on January 29, rather than separately disclosing them. Those newly identified GAAP violations add to a long laundry list of other violations.
Well that’s cute. Now I may not be an SEC filing savant like some among us but, um, something smells wrong here. I’d say I can’t put my finger on it but I can, the only problem is I can’t seem to wash the stink off my finger.
Gary Weiss is also all over it (naturally) and is equally shocked that OSTK would attempt to casually insert new, previously undisclosed accounting violations in with the old, previously disclosed accounting violations as if, you know, it’s a good idea to just lump them all in together while we’re on the subject of violating GAAP accounting. I’m no CPA but if I were advising Overstock on its accounting practices, I might warn against netting its creative accounting in SEC filings for starters. Separately stated items, people, come on.
Do you think it’s merely a coincidence that Overstock has burned through two audit firms in a year’s time? Perhaps not and maybe KPMG has the magic touch that will turn Overstock’s straw financials into gold but if we were the betting type, we’d put our money on indictments and a really messy fall for the Salt Lake City outlet.
We’re all calling bullshit, Overstock. Your turn.
Accounting News Roundup: Overstock.com Filing 10-K Late; Avoid Tax Related Status Updates on Facebook; IRS Is Getting to Most of Your Calls | 03.17.10
• Happy St. Patrick’s Day! Try to stay sober-ish at lunch today.
• Overstock.com Delays Filing 10-K, Reports Even More GAAP Violations, While Patrick Byrne Hides [White Collar Fraud]
Yesterday marked another SEC deadline that has come and gone, and if you’re one of those teams that has a client filing late, this means that your life is still not yours. Case in point, the KPMG team tasked with turning the ship around at Overstock.com still has some work to do as they filed form 12b-25 yesterday afternoon, notifying the SEC that the 10-K would be a tad late.
“Overstock.com nonchalantly lumped in its latest GAAP violations with other GAAP violations previously disclosed by the company on January 29, rather than separately disclosing them,” writes Sam Antar (emphasis original). Here are the new booboos:
Identification of amounts related to customer refunds and credits not properly included in the Company’s monthly reconciliation of customer refunds and credits to third party statements to determine the completeness and accuracy of returns expense.
The accounting for certain external audit fees on a ratable basis, instead of as incurred.
The recognition of co-branded credit card bounty revenue and promotion expense on an immediate recognition basis, instead of over time.
The late recognition of a reduction in the restructuring accrual for a new sublease and the recognition of interest expense related to the accretion of the restructuring accrual.
The Company reports that the filing will be delayed “until it has completed the restatement process and all procedures necessary,” to get things right. Patrick Byrne is nothing, if not thorough. Oh, and they mentioned that they’ll be reporting material weaknesses in their internal control system but, BUT! that they are still going to report their first annual profit. Shareholders can tepidly rejoice.
• IRS Uses Social Networks for Tax Probes [Web CPA]
The IRS has decided that the best way to discover your tax dodging ways is to look for clues in the one place no one can resist being completely and uncomfortably honest: Facebook.
Web CPA reports, “The Electronic Frontier Foundation has released documents uncovered from Freedom of Information Act requests, showing that the IRS as well as the FBI and other government agencies have been using social media sites like Facebook to collect information for investigations.”
Right. We suggest you stop talking about the six-figure 1099 you got that didn’t have any withholding and that you didn’t bother making estimated tax payments. Or roll the dice, lock up your privacy settings and continue with the financial TMI. Your choice.
• TIGTA: IRS on Track to Meet Goal of Answering 71% of Taxpayer Phone Calls After a 12-Minute Wait [TaxProf Blog]
The IRS is making good on its promise to ignore less than 30% of the phone calls from taxpayers needing help with their 2009 tax returns. They’re also getting to each caller in less than twelve minutes which is pretty good considering all the shit they’re putting up with these days (planes, packages full of personal items that might be a something, people having seizures, overzealous agents). If you’ve got an extra twelve minutes, call them up and thank them for their service.
Sam Antar Is Still Waiting for an Apology from Patrick Byrne and By the Way, Has Never Engaged in Naked Short Selling
Sam Antar knows an accidental criminal hero when he sees one: his cousin Eddie Antar was hailed as a champion of cheaply-priced consumer electronics in the Crazy Eddie days, though the poor saps in New York didn’t realize he could price his goods so cheaply because he was stiffing the government on sales and payroll taxes. Patrick Byrne and Overstock.com are pushing to corner the accidental criminal hero market by denouncing the evils of naked short sellers (bad bad bad), of which they seem to be convinced Sam is one.
While we’re on the topic of OSTK’s campaign to end evil naked short sales, I hereby volunteer to help Overstock edit their naked short selling page, by the way, as it’s not only a dry read but a tad poorly-written. Just sayin. Helpful girl that I am, it’s the least I can do.
Anyway, Sam’s still waiting for his apology from Patrick Byrne but in the meantime, would like him to take back those mean things he said about Sam naked shorting them to death. In an email to the SEC, Byrne himself and Overstock.com audit committee member Joseph Tabacco this weekend, Sam sets the record straight:
First off, I have never been involved any illegal naked short selling.
Second, how can Overstock.com label me as an “anti-Overstock.com blogger” when:
I correctly reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures.
I correctly reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement.
Third, please note Utah Attorney General Mark Shurtleff received $5,000 in cash from Overstock.com a few days prior to writing his defamatory letter about me. Both Chief Deputy Attorney General Kirk Torgensen and Deputy Attorney General Richard Hamp acknowledged that Shurtleff’s claims about me were false in various tape recorded conversations cited in my blog.
Sam goes on to explain that he’s actually doing Overstock a favor by uncovering fraud that its own audit committee has seemed to, um, overlook. You know, so they can set themselves right with the SEC and skip the restatement next year, filing all those extensions can get pricey and time-consuming you know.
See, Patrick, why so hostile? We’re all just trying to help!
Three Ways That Patrick Byrne Can Apologize to Sam Antar
As you’re probably aware (if not, check the links below), it hasn’t been the friendliest of exchanges between criminal CFO/forensic accounting sleuth Sam Antar and Overstock.com CEO Patrick Byrne. Sam being Sam, he recently reached out to Patrick Byrne to see if he would be interested in a mea culpa:
From: Sam E. Antar
Sent: Monday, March 08, 2010 11:02 PM
To: Patrick M. Byrne
Subject: Overstock.com Restatement
Importance: HighHi Patrick:
Will you finally admit that I was correct when I reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?
You owe me a public apology.
Regards,
Sam
Our understanding is that Pat hasn’t responded to Sam’s request for an apology yet (we’re hopeful!) so Team GC thought we’d offer some suggestions to Dr Byrne should he decide to take the high road and apologize to Sam. Having been in this situation more than once myself, I can honestly say sometimes you’ve just got to suck it up, buy some flowers, and admit that you’re an ass but totally repentant.
Overstock.com gift cards – Nothing says I’m sorry like free stuff that the aggrieved party can pick themselves. Bonus, the overhead on Byrne’s own inventory must be low. You know, because it’s his, not because there is any monkey business going down on OSTK’s financials.
An SEC Gift Shop Goodie Basket – I busted Sam in an SEC baseball hat at Stanford last week so wouldn’t it be cute if Byrne got him a whole basket full of fun regulatory shwag? Awww, what a precious moment it would be watching Sam pull out DoJ beer cozies and a color-changing SIGTARP coffee mug. Who doesn’t love tchotchkes? PB can’t go wrong! I’d even throw in a pair of NY Fed Pistol Team patches for that added touch of flair.
Cupcakes – Come on, no one can resist cupcakes, not even Sam E. Antar’s hardened criminal ass. You know, might as well send some to the GCHQ while he’s at it, we’ve been putting up with this Overstock shit for months too. Hopefully even Patrick Byrne knows when it comes to cupcakes, it’s best to invest in high quality, over-priced boutique cupcakes. Even my cheap ass knows that.
Earlier:
Winners and Losers in the Overstock Restatement
Even Earlier:
Is Patrick Byrne’s Facebook Friends List Motivated by a Farmville Obsession?
Winners and Losers in the Overstock Restatement
With Overstock.com announcing last week that they would be restating their financial statements for the the last three quarters and their 2008 consolidated financial statements, it marked another open-mouth-insert-foot moment for Patrick Byrne and his Company.
This will be the third restatement in the last three years. We understand that financial reporting can be tricky but this doesn’t make for a very good pattern.
Winners:
• Steve Cohen, Michael Milliken, Sam Antar, Joe Nocera, Gary Weiss, Roddy Boyd, Barry Ritholtz, Felix Salmon, Henry Blodget, John Carney, Joe Wisenthal, et al. – Anyone and everyone vilified by Patrick Byrne because they questioned either him, his Company, or both. Patrick Byrne has always maintained that these people were part of large conspiracy of short sellers and financial bloggers and journalists. The restatement simply proves that whatever suspicions they had about Overstock, they were right. Plus all their friends and family on Facebook were violated by creepazoid and Deep Capture hatchet-man, Judd Bagley. That’s just not cool.
• Grant Thornton – Not sure if GT realized it at the time, but getting fired by Overstock is looking pretty good right now. So they changed their minds on the accounting; BFD, right? It happens and clients typically get over it. Pat Byrne decided that it was unacceptable and that LOUDLY crucifying GT in SEC filings, the press, and on conference calls would convince everyone that the auditors were idiots and Overstock and he would triumph over this injustice. Grant Thornton did not hesitate in chanting “liar, liar pants on fire” to Patsy’s face (nothing to lose, they were already fired) and now they’re clear of this three ring circus.
Losers:
PricewaterhouseCoopers – PwC was the auditor for Overstoc prior to Grant Thornton and had always signed off on the company’s financial statements (excellent service in PB’s mind). Now that the restatement has occurred, PwC gets dragged back into the fray to explain what they did, why they did it, and how they got it wrong. A) That just sucks and B) who the hell is going to remember what the hell they did four years ago?
Overstock shareholders – Any Company that restates their financial statements with any regularity whatsoever should be avoided like a group of lepers. If you’re still currently long in Overstock, you have the chance to make the right the decision: sell while the shares are worth something. Your humble servant Patrick Byrne has failed you.
Jury is out:
KPMG: For some reason, Klyneveld Salt Lake City decided that despite Overstock’s dubious past, they were willing to roll the dice. The firm now has the pleasure of guiding the firm through this restatement and somehow pulling the audit for fiscal year 2009 together. The whole exercise reeks of futility. Anyone that happened to be assigned to this engagement and a shred of sanity would have given their notice on the spot. For the time being, the firm seems to be sticking it out but time will tell if the firm changes their mind about their risky new client.
SEC: Everyone knows 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.
Quote of the Day: So We Should Expect That SEC Filing Any Day Now? | 02.08.10
“In my opinion, KPMG will resign the engagement if there is reason to doubt management integrity, and will not be rushed into issuing an audit opinion by NASDAQ-listing deadlines needed to avoid Overstock.com becoming a Pink Sheet or Bulletin Board stock.”
~ Howard B. Sirota, former lead counsel in Crazy Eddie class action suits
KPMG Rolls the Dice, Will be the Next Auditor of Overstock.com
But you already knew that was going to be the case. Back when we asked you to vote on which firm would be the next firm fired engaged by Overstock, over 42% of you said it would be KPMG.
This news comes despite reservations expressed by at least one reader who, at the time, had this commen lockquote>I for one think it is sad that such a high percentage of survey responders think KPMG will pick up OSTK. I hope from a public opinion and liability standpoint that KPMG will resist the urge to add yet another high risk client to its listing and cause further damage its reputation.
Sorry, dear reader but apparently the high profile cat fight between the company and Grant Thornton wasn’t enough to scare KPMG off. Not even the very public revelation of Patsy’s creepy-ass stalking of Overstock critics in the financial media and blogosphere caused the KPMG partners in SLC to turn this client down.
Oh, and not to mention a management team who thought that filing unreviewed 10-Q was the best course of action. But as white-collar crime expert (and self-proclaimed crook) Sam Antar told us:
KPMG is taking a client with no management integrity and is well advised to study SAS No. 99 about “Consideration of Fraud in a Financial Statement Audit” regarding the unethical “tone at the top” set by Overstock.com’s unprincipled management team. Every single initial financial report for every reporting period issued by Overstock.com has failed to comply with GAAP and other SEC disclosure rules since the company’s inception. Overstock.com has restated its financial reports two times in the last three years and now is trying to avoid a third restatement of financial reports resulting from its improper use of “cookie jar” reserves to inflate its financial performance from Q4 2008 to Q3 2009.
In case you’re not convinced of management’s shadiness, Sam also pointed out that they intended to wait for the current SEC inquiry to be resolved prior to choosing a new auditor:
Patrick Byrne and Jonathan Johnson went back on their promise that they would not shop for an audit opinion. Both Byrne and Johnson previously told investors that Overstock.com would wait until after the SEC Division of Corporation Finance completed its review of the company’s financial disclosures.
We looked at the transcript of the conference call and here’s what we found (a link to the entire transcript is below):
Willis Taylor – Gagnon Securities – Analyst
Since you’ve dismissed your auditor for a very specific accounting choice, when you go to select a new auditor, how do you prevent yourself from being accused of opinion shopping?
Jonathan Johnson – Overstock.com – President
That’s a great question, Louis, and that’s part of the reason that we’ve decided not to select a new auditor until this — until we resolve this issue with the SEC. We do not want to be accused of opinion shopping. We’d like the SEC to help us figure out — we’d like them to say we’ve done it the right way or we’ve done it the wrong way. Once they say one of those two, we don’t need to opinion shop.Patrick Byrne – Overstock.com – Chairman and CEO
But, so, I would even say to the point that when people have contacted us, we have discouraged any communication on the grounds that we got — for just that reason — well, I have the — no matter who we talk to now, then whoever we ultimately pick, people are going to say, well, you did this because you opinion shop.
So we’re really not having discussions with anybody. It’s nice to get phone calls, but we’re not talking to anybody until we get through this just to prevent — just as a prophylactic measure.
From the sounds of it, Overstock was beating off firms with a stick, so the pressure must have gotten to company’s audit committee to pick a new firm prior to the SEC wrapping up its little inquiry. So can we assume that since the SEC hasn’t told them yay or nay on their accounting, they ARE opinion shopping?
And so the winner (read: next to be dismissed) is KPMG, who not only has to throw together an audit for 2009, they have to re-issue 10-Qs for the last three quarters. Who in SLC is giving up sleep for the next four months?
Here is the Overstock press release (we emphasized some good parts) which is not shy about slamming Grant Thornton or that the SEC isn’t finished with its inquiry:
Overstock.com, Inc. (Nasdaq: OSTK) today announced that its Audit Committee engaged KPMG as the company’s independent registered public accounting firm of record for the fiscal year ending December 31, 2009. KPMG will conduct an integrated audit of the company’s 2009 financial statements, including review of the company’s quarterly information for the periods ending March 31, 2009, June 30, 2009 and September 30, 2009.
“It is nice to be back with a Big Four accounting firm,” said Jonathan Johnson, President of Overstock.com. “We are pleased to have the resources and professionalism that KPMG brings as our auditors. We will work closely with them to timely file our 2009 Form 10-K. In the meantime, we remain in discussions with the SEC to answer the staff’s questions on the accounting matters that lead to our filing an unreviewed Form 10-Q for Q3.”
Overstock.com’s Audit Committee dismissed Grant Thornton, its previous auditors, in November when Grant Thornton advised the company that they had revised their position on how the company should have recorded a $785,000 asset in 2008, and, that as a result of this revised accounting position, Grant Thornton would be unable to complete their review of the company’s Q3 2009 financial statements unless the company amended its previous 2009 quarterly filings and restated our 2008 financial results.
We wanted to get KPMG’s thoughts on this but our emails have gone unreturned at this time. If you’re in the know, definitely get in touch with us about anything related to the latest twist to this story.
Will a Boycott of Overstock.com Thwart Patrick Byrne’s Auditor Hunt?
Guys and gals, we here at GC are concerned about something. Something other than who the next face of Accenture will be (honestly we’re excited about Chuck’s commanding lead).
No, we’re concerned that your humble servant and Farmville enthusiast Patrick Byrne is going to be unable to find an auditor for Overstock.com. The company has until January 18th to pull something together so the NASDAQ doesn’t delist them and if things continue the way they are, it’s going to be hello Pink Sheets.
Maybe things wouldn’t look so grim if PB hadn’t blown off CNN. Or if he hadn’t pissed off every single financial journalist and blogger by getting too friendy.
But now that Barry Ritholtz has called for a boycott, any hope for finding the next auditor to put the stamp of approval on OSTK’s financial statements is fading.
Wait! Gary Weiss has his doubts: “As for that boycott: great idea, except that with Byrne manipulating the financials, how would you know if it is having any impact?”
Whew! There’s still a glimmer.
Boycott Overstock.com [The Big Picture]
Preliminary Analytics | 12.14.09
• H.R. 4173, Summary of Accounting and Audit Related Provisions – Lots to digest here but it’s all important, including a possible GASP name change for the PCAOB. [FEI Financial Reporting Blog]
• Invitation to a Conversation: If the Auditors Were Missing from the Financial Crisis — Let’s Ask Why – Jim Peterson doesn’t mince words: “The simple if depressing reason is that their core product has long since been judged irrelevant. The standard auditor’s report is an anachronism — having lost any value it may once have had, except for legally-required compliance.” [Re: Balance/Jim Peterson]
• Accenture Makes Right Decision, Drops Tiger Sponsorship – The awkward inappropriateness of the whole situation is now hitting T. Dubs in the wallet, as Accenture jumps into the “your services are no longer needed” camp. He won’t starve. [The Big Four Blog]
• Open Letter to the Securities and Exchange Commission (Part 5): Issuer Retaliation Complaint Against Overstock.com – Patrick Byrne’s attempt to develop his own Richard Nixon-esque enemies list has been met with fierce resistance. [Sam Antar/White Collar Fraud]
• CPA firms face pricing pinch – “After years of gains since the government started keeping track in December 2003, overall prices for CPA firm services plummeted with the onset of recession in December 2007.” [CPA Trendlines]
• Citigroup to Repay $20 Billion of Government Bailout – $25 bil to go. Get on it. [Bloomberg]
Preliminary Analytics | 12.10.09
• SEC’s Khuzami ‘Skeptical’ of Auditors’ Claims on Privilege – Privlege shmivlege. [FEI Financial Reporting Blog]
• Obama Proposes $12,000 “Cash for Caulkers” Program – Including the most immature montage ever. [TaxProf Blog]
• Overstock.com and Patrick Byrne Have an Enemies List That Includes Friends and Family Members of Critics – Using Facebook no less. Anyone surprised? [Sam Antar/White Collar Fraud]
• Madoff Auditor Plea May Signal Other Probe – Tax charges thrown in with David Friehling’s guilty plea may indicate that prosecutors may be building a case against other Friehling clients including the Madoff sons. [WSJ]
• Broadcom Co-Founder Cleared in Backdating Probe – “U.S. District Judge Cormac J. Carney made the announcement after Samueli, owner of the NHL’s Anaheim Ducks, spent two days testifying for the defense in the fraud trial of a former executive for the telecommunications chip maker. ”You have restored my faith in the criminal justice system,” an exhilarated Samueli told the judge in federal court in Santa Ana.” Avoiding prison will do that. [AP via NYT]
Patrick Byrne May Say Something That Will Antagonize You
The Patrick Byrne Express (via Segway, natch) pulled over from its nationwide auditor search to pen the latest triumph in his quest to refute every Overstock/Patrick Byrne hater on the planet.
Patsy’s latest letter informs us of the settlement that Overstock has reached with Rocker Partners, one of those short-selling hedge fund haters, for $5 million.
His masterpiece opens with “The good guys won” and then rambles on to tell us how he feels about pretty much everyone in financial media. And that’s what this was really all about. It wasn’t about the money, you fools. This was about exposing the anti-Overstock/Patrick Byrne contingent:
What is of vastly greater significance than this $5 million payment, however, is an examination of the cover-up conducted by elements of the New York financial press. Taking the lead was CNBC, which spent a great deal of airtime downplaying the significance of this suit, vilifying me, and smearing Overstock.
Apparently, this is just the beginning. Prime brokers, sounds like you’re next.
And just so you know, PB and his company don’t give a damn if you, the SEC, or anyone else for that matter gets bent out of shape about them spreading the truth. As Floyd Norris rehashes some of the trubs going on in casa de Overstock, he notes this little treasure from the company’s unreviewed 10-Q:
Public statements we or our chief executive officer, Patrick M. Byrne, have made or may make in the future may antagonize regulatory officials or others.
We and our chief executive officer, Patrick M. Byrne, have from time to time made public statements regarding our or his beliefs about matters of public interest, including statements regarding naked short selling. Some of those public statements have been critical of the Securities and Exchange Commission and other regulatory agencies. These public statements may have consequences for us, whether as a result of increased regulatory scrutiny or otherwise.
Sounds like fighting words to us. Go ahead and bring it, SEC. Patrick Byrne will be waiting.
Overstock Claims Victory [Floyd Norris/NYT]
Patrick Byrne Misses Golden Opportunity to Solicit Potential Auditors
Just when we thought the hubbub around shareholder servant Patrick Byrne had gone on hiatus, we came across a post from Gary Weiss telling us that Patsy bailed on a CNN appearance for State of the Union with John King.
According to the website, “Patrick Byrne, Chairman & CEO of Overstock.com, looks at how consumer spending will fare this holiday season during a global recession.”
As Weiss notes:
Seriously, though, CNN’s bookers had no choice. What other CEO of any retail outlet bigger than a pushcart would be available during the busiest retailing weekend of the year? Byrne was scheduled to appear from studios in San Francisco, not Salt Lake City, where the corporate headquarters is located.
Here he was, while his company teetered on ruin, either flying into San Francisco for the chance to get his puss on national TV, or living it up on Telegraph Hill or wherever, far from his beleaguered and SEC-investigated company.
Apparently Byrne was late and dropped from the show. There is no transcript available for his appearance but if his smiling mug (hopefully posing on a Segway) made an appearance, by all means let us know.
In all likelihood, he was on the hunt for Friehling & Horowtiz’s San Fran office but an open plea on national television seems like a better way to find his company’s next auditor. Oh well. Next time!
“Economic Expert” Patrick Byrne Dumped by CNN [Gary Weiss]
More GC Coverage of Patrick Byrne/Grant Thornton saga:
Patrick Byrne: Noooo, Grant Thornton, You’re Lying
Grant Thornton: Patrick Byrne’s Pants Are on Fire
Overstock.com Receives Delisting Notice, Really, Really, Really Needs an Auditor
Just a brief follow-up on the three ring circus known as Overstock.com. After Wednesday’s bizarro conference call, Ringmaster Patrick Byrne and his company filed an 8-K on Friday letting the SEC know that the NASDAQ wasn’t impressed with the unreviewed 10-Q that the company filed last week.
The NASDAQ notice informed OSTK that since the company thought it would be cute to file an unreviewed 10-Q, they will delist the OSTK from the exchange if they are not back in compliance with listing rules by January 18th.
It was an especially nice touch that OSTK filed the 8-K “two minutes after market close today, a day after the letter was received.”
Getting back into compliance will involve finding an auditing firm stupid enough desperate enough willing to be the next humble servant to sign off on the 10-Q.
The issue at hand is worth putting to a vote. For whatever reason you like, choose the firm that should be the next auditor of OSTK. We’re not privy to all the possible independence issues that may exist, so anyone that brings them up to point how one firm would be disqualified can piss off.
Overstock.com Fires Grant Thornton, Files Unreviewed 10-Q, CEO Remains Humble
There’s really nothing better than an eccentric CEO throwing caution to the wind, consequences be damned.
Insert Patrick Byrne, CEO of Overstock.com (“OSTK”). He issued a letter via press release yesterday that has many people’s attention.
Byrne opens the letter by quoting Nietzsche:
“All things are subject to interpretation; whichever interpretation prevails at a given time is a function of power and not truth.”
Tragic enough but then Byrne really amps it up, droning on for eleven points about his company’s dire situation. Here’s the gist*:
• The difficult accounting treatment of an overpayment received by OSTK from a “partner”.
• Putting the audit out to bid after “eight years of fine service” from P. Dubs, and hiring GT because “my belief that changing auditors every decade or so might be healthy.”
• SEC inquiries into the accounting treatment of the overpayment.
• GT changing their minds on the accounting treament after said inquiries.
• We’re filing an unreviewed 10-Q, P. Dubs is on board for our treatment, GT is fired, anyone (and I mean anyone) want to audit us?
Byrne spends no less than six paragraphs/points explaining GT’s wishy-washy, bending-over-for-the-SEC ways. The man is nothing if not thorough.
Spineless auditors notwithstanding, Byrne will press on, the company will overcome, and he will remain committed to you, Overstock.com shareholder:
I will hold a conference call to further explain and answer questions regarding this matter on Wednesday afternoon at 5:00 p.m. EST (details below). Until then, I remain,
Your humble servant,
Patrick M. Byrne
10-Q [SEC.gov]
8-K: Dismissal of Grant Thornton [SEC.gov]
Press Release [SEC.gov]
*If you want to debate the particulars, be my guest but this isn’t the Journal of Accountancy, feel me?
Do Recessions Cause Accounting Irregularities?
Some people think so. Emily Chasan at Reuters discusses the perceived rise of accounting irregularities today:
“Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers at U.S. companies.”
Okay but don’t accounting regularities happen all the time? If the economy is humming along nicely does that mean that less companies are engaging in accounting hocus-pocus? Hmmmmm.
But there’s more argument for “it’s the economy stupid”:
“Statistically you can show any time you have a recession or some type of tremendous decline in an economy you’re going to see financial pressures on companies,” said Bruce Dorris, program director at the Association of Certified Fraud Examiners, noting that corporate employees can sometimes be motivated to be overly aggressive with accounting or commit outright fraud to meet targets, particularly in difficult economic times.
The article cites Apollo Group’s stock dropping 18% yesterday after announcing that the SEC was starting an “informal inquiry” into its revenue recognition policies. It also lists Overstock.com, Town Sport International Holdings (owns NYSC), Zale Corp and also Huron Consulting whose stock price is still down 40% since the announcement of the SEC investigation. All these companies have delayed earnings reports or had investigations into their accounting practices.
So feel free to discuss your clients and their creative nature in this economy. Are their hard-nosed GAAP puritan ways caving to earnings pressure or are your partners the ones caving in the name of client service? Nobody wants a to be working on a client that’s going through a restatement. Nobody.
Accounting irregularities may be on the rise in U.S. [Reuters]