There seems to be a trend developing here. Three months ago, Overstock's stock price was still close to $16. By early December it was at $15. By early January, about $13.50. Now, though, it has fallen below $11.50.
There is a lot of news behind that fall, and I've discussed some of it in this blog, as when the company filed an unreviewed 10Q in November entering into a public debate with Grant Thornton about its books in the process.
Things have gotten worse over the winter. Roddy Boyd wrote a fine article for the online magazine SLATE that proved that diamonds aren't necessarily every girl's best friend.
And this past week? Overstock has acknowledged that its accounting can not be relied upon. Part of the mis-counting to which they've admitted involves those "fulfillment partners" we've discussed here before. I'll quote their dry language verbatim: "Operational errors in the amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from the vendor. Once discovered, the Company applied “gain contingency” accounting for the recovery of such amounts, which it has now determined was an inappropriate accounting treatment. Correction of these errors is expected to shift approximately $1.7 million of income recognized in fiscal year 2009 back to fiscal year 2008."
Which means ... what? It means that the company inappropriately shifted to 2009 income they should have attributed to 2008, and now has been gently persuaded to shift it back. This admission is intended to "address all outstanding issues raised in the comment letter dated November 3, 2009 that the Company received from the Division of Corporation Finance of the Securities and Exchange Commission." It also confirms the long-standing charge by Sam Antar and others that Overstock set up a cookie jar reserve to inflate future profits (or, more strictly, to minimize future losses and make it appear that the company is on a path-to-profit eventually).
Antar (who would want me to remind you at this time that he is a convicted felon himself in connection with the old "Crazy Eddie" scam) explained what was wrong with Overstock's booking many times, such as here, and has now done a warranted victory lap here.
Showing posts with label Overstock.com. Show all posts
Showing posts with label Overstock.com. Show all posts
Monday, February 8, 2010
Tuesday, January 5, 2010
Some links
Some thoughts for boards of directors as we and they head into a new year.
A very different view of boards, from Findlay.
And, from the same source, outrage about bonuses for Nortel execs.
Peerless and Highbury kiss and make up says the Daily Breeze.
Peerless and Highbury, Back in the Day!
Rakoff order in Bank of America case is worth a read.
as is Tracy Coenen, on the latest news regarding Overstock.
A very different view of boards, from Findlay.
And, from the same source, outrage about bonuses for Nortel execs.
Peerless and Highbury kiss and make up says the Daily Breeze.
Peerless and Highbury, Back in the Day!
Rakoff order in Bank of America case is worth a read.
as is Tracy Coenen, on the latest news regarding Overstock.
Tuesday, December 22, 2009
OSTK's stock price
The price of a share of Overstock.com Inc.'s equity has drifted downward considerably since the company filed that shockingly unaudited 10Q a little more than a month ago.
A share was worth $16.25 at the close of business November 16, but only $13.22 after yesterday.
Still, one might fairly argue that the Refco analogy that immediately sprung to my mind at the time was hasty. Refco folded within a single week after its accounting came under scrutiny. That scrutiny began in earnest, as I've mentioned before, on October 10, 2005 when the company announced it had discovered a receivable owed to the company in the amnount of $430 million. Refco filed for chapter 11 protection only one week later. Since Overstock is still around, should we dismiss the proposed analogy?
Not entirely. Financial services firms, like Refco, are especially vulnerable to a quick unravelling, simply because trust is all they are selling. It is their stock in trade. If Overstock were only selling trust in its value as a counter-party, it would likely be done now, too. But Overstock is selling physical merchandise, a fact that can slow the forces of destruction.
The Facebook shenanigans that have more recently garnered attention began well before the fall-out of auditee with auditor. Yet the emergence of the former into the light of dayt so soon after the latter has a poetic appropriateness to it, and some of the statements that Byrne and Bagley have made since the matter became public have had the sound of desperation.
Oh, BTW, a moment ago I mentioned that Overstock sells physical merchandise. I wonder, though, if that is still what underlies its stock price. Perhaps for purposes of stock analysts Overstock is really selling a share of its lawsuits. But more on that possibility another time.
A share was worth $16.25 at the close of business November 16, but only $13.22 after yesterday.
Still, one might fairly argue that the Refco analogy that immediately sprung to my mind at the time was hasty. Refco folded within a single week after its accounting came under scrutiny. That scrutiny began in earnest, as I've mentioned before, on October 10, 2005 when the company announced it had discovered a receivable owed to the company in the amnount of $430 million. Refco filed for chapter 11 protection only one week later. Since Overstock is still around, should we dismiss the proposed analogy?
Not entirely. Financial services firms, like Refco, are especially vulnerable to a quick unravelling, simply because trust is all they are selling. It is their stock in trade. If Overstock were only selling trust in its value as a counter-party, it would likely be done now, too. But Overstock is selling physical merchandise, a fact that can slow the forces of destruction.
The Facebook shenanigans that have more recently garnered attention began well before the fall-out of auditee with auditor. Yet the emergence of the former into the light of dayt so soon after the latter has a poetic appropriateness to it, and some of the statements that Byrne and Bagley have made since the matter became public have had the sound of desperation.
Oh, BTW, a moment ago I mentioned that Overstock sells physical merchandise. I wonder, though, if that is still what underlies its stock price. Perhaps for purposes of stock analysts Overstock is really selling a share of its lawsuits. But more on that possibility another time.
Wednesday, November 25, 2009
From Overstock's Former Auditor
Quote Nietzsche on us, will they??? We'll show them who's the Ubermench!
As you'll remember, and we chronicled here, on November 16, Overstock filed with the Securities and Exchange Commission an "unreviewed" Form 10-Q for its results in the quarter that ended September 30. It claimed that it had had to dismiss its auditor, Grant Thornton, because of a sudden change of heart on the part of Grant Thornton as to how a certain matter should be treated.
Specifically, it seems that the key to the dispute was the account of a particular "fulfillment partner." Often, when you order a product through Overstock's website, you are not buying it from Overstock, but from a third party, a business looking to unload its own inventory, and using Overstock as the cyberspace go-between for this purpose. Overstock has said that it accidentally overpaid one of these partners approximately $700,000 in 2008, and the partner informed it of this in February of this year. So ... doesn't that mean that the partner is acknowledging a debt, and that this debt is an asset (an account payable) that should be reflected as such on Overstock's books?
If so, then since the overpayment occurred in 2008, the account payable was an asset as of December 31, 2008. Overstock decided not to treat it as such, but to treat the later payment of $785,000 from that partner (principal and interest?) as part of its acknowledgement of the receipt of one-time non-recurring income of $1.9 million. That involved lumping the $785,000 in with certain other matters we won't trifle with here.
According to paragraph 7 of this press release, which is worth quoting in full because it has now become the crux of the controversy: As our auditors, Grant Thornton reviewed our financial statements in Q1 and Q2 2009 before we filed Form 10-Q's for those quarters. Throughout 2009, our Audit Committee has repeatedly asked Grant Thornton if there was any accounting that it would do differently, and repeatedly received the answer, "No." In fact, as recently as late-October 2009, Grant Thornton confirmed to us that it supported our accounting method for recognizing the $785,000.
Then, somehow, in November Grant Thornton changed its collective mind and decided that the account at issue should have been recorded as an asset in 2008 after all. Grant Thornton then reportedly gave Overstock an ultimatum: restate your 2008 results accordingly or we won't sign off on your third quarter filing. That's why Overstock fired them and, insteads of simply letting the clock continue to run while it searched for a new auditor -- filed the now notorious unreviewed 10Q. Of course, that clock is still running anyway, because they are out of compliance until they come up with an audited one. This filing remains bizaare.
But the new twist to the tale is that on November 20, (Friday, around the time Overstock was revealing that Nasdaq might de-list them), Grant Thornton LLP sent a letter to the Securities and Exchange Commission giving its own account of the story behind Overstock's recent 8K.
The short summary would be: "They are lying about why we left, and we left because they were lying before that." They say that (contrary to paragraph 7 as quoted above) they were not "repeatedly asked" throughout 2009 whether the treatment of this money was proper, and they never signed off on it.
"We disagree with the Company’s statement in paragraph 7 'that upon further consultation and review within the firm, Grant Thornton revised its earlier position' regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error."
Sam Antar makes the case, not for the first time, that what is going on here is the maintenance of a cookie-jar reserve. Antar knows fraud, having committed more than his share of it. On his account, he's now trying to stay out of hell. Theology aside, I think the case he makes is worthy of the the SEC's full attention.
The whole affair continues to have the odor of Refco's hide-the-loan scheme, which unwound four years and one month ago. It looks so far like a low-rent variant of that, but it does not look good.
As you'll remember, and we chronicled here, on November 16, Overstock filed with the Securities and Exchange Commission an "unreviewed" Form 10-Q for its results in the quarter that ended September 30. It claimed that it had had to dismiss its auditor, Grant Thornton, because of a sudden change of heart on the part of Grant Thornton as to how a certain matter should be treated.
Specifically, it seems that the key to the dispute was the account of a particular "fulfillment partner." Often, when you order a product through Overstock's website, you are not buying it from Overstock, but from a third party, a business looking to unload its own inventory, and using Overstock as the cyberspace go-between for this purpose. Overstock has said that it accidentally overpaid one of these partners approximately $700,000 in 2008, and the partner informed it of this in February of this year. So ... doesn't that mean that the partner is acknowledging a debt, and that this debt is an asset (an account payable) that should be reflected as such on Overstock's books?
If so, then since the overpayment occurred in 2008, the account payable was an asset as of December 31, 2008. Overstock decided not to treat it as such, but to treat the later payment of $785,000 from that partner (principal and interest?) as part of its acknowledgement of the receipt of one-time non-recurring income of $1.9 million. That involved lumping the $785,000 in with certain other matters we won't trifle with here.
According to paragraph 7 of this press release, which is worth quoting in full because it has now become the crux of the controversy: As our auditors, Grant Thornton reviewed our financial statements in Q1 and Q2 2009 before we filed Form 10-Q's for those quarters. Throughout 2009, our Audit Committee has repeatedly asked Grant Thornton if there was any accounting that it would do differently, and repeatedly received the answer, "No." In fact, as recently as late-October 2009, Grant Thornton confirmed to us that it supported our accounting method for recognizing the $785,000.
Then, somehow, in November Grant Thornton changed its collective mind and decided that the account at issue should have been recorded as an asset in 2008 after all. Grant Thornton then reportedly gave Overstock an ultimatum: restate your 2008 results accordingly or we won't sign off on your third quarter filing. That's why Overstock fired them and, insteads of simply letting the clock continue to run while it searched for a new auditor -- filed the now notorious unreviewed 10Q. Of course, that clock is still running anyway, because they are out of compliance until they come up with an audited one. This filing remains bizaare.
But the new twist to the tale is that on November 20, (Friday, around the time Overstock was revealing that Nasdaq might de-list them), Grant Thornton LLP sent a letter to the Securities and Exchange Commission giving its own account of the story behind Overstock's recent 8K.
The short summary would be: "They are lying about why we left, and we left because they were lying before that." They say that (contrary to paragraph 7 as quoted above) they were not "repeatedly asked" throughout 2009 whether the treatment of this money was proper, and they never signed off on it.
"We disagree with the Company’s statement in paragraph 7 'that upon further consultation and review within the firm, Grant Thornton revised its earlier position' regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error."
Sam Antar makes the case, not for the first time, that what is going on here is the maintenance of a cookie-jar reserve. Antar knows fraud, having committed more than his share of it. On his account, he's now trying to stay out of hell. Theology aside, I think the case he makes is worthy of the the SEC's full attention.
The whole affair continues to have the odor of Refco's hide-the-loan scheme, which unwound four years and one month ago. It looks so far like a low-rent variant of that, but it does not look good.
Tuesday, November 17, 2009
Overstock Files Unreviewed 10Q
This is amazing.
A tip of the hat to Overstock-news-junkie Gary Weiss here. As Weiss points out, even Bernie Madoff had "some accountant somewhere" who would review his filings. But Overstock files this quarter without an auditor review. And it opens up its press release on the subject by quoting Nietzsche: "All things are subject to interpretation; whichever interpretation prevails at a given time is a function of power and not truth."
I'm getting a Refco-in-October-2005 kind of vibe about Overstock right now.
You may remember that the first time the naive portion of the world learned that there was anything wrong at Refco it was Monday, October 10, 2005, when Refco announced that through an internal review over the weekend it had discovered a receivable owed to the company in the amount of approximately US$430 million.
That struck many people as a rather strange thing to suddenly 'discover' and the stock price started tanking.
Over the course of that week, further revelations came out. I won't go into them now because I have no reason to believe they are useful to the analogy. But the gist of it is, the initial market sell-off was more than justified by the underlying facts. Only one week later, Refco filed for chapter 11 protection.
I'm not saying that the same will happen here. I have no idea. And Overstock's argument with its (former) auditor, Grant Thornton, seems to have involved a matter quantitatively much smaller than the sum involved in the news that broke on October 10, 2005. But this has that feel -- a bit of accounting-matter weirdness that is sufficiently unusual that one suspects there is more to it. Overstock made this announcement after the markets had closed (check the PR Newswire announcement to which I linked you above -- it gives the time of release as 5:35 EST Monday.)
The market will make a judgment soon enough.
A tip of the hat to Overstock-news-junkie Gary Weiss here. As Weiss points out, even Bernie Madoff had "some accountant somewhere" who would review his filings. But Overstock files this quarter without an auditor review. And it opens up its press release on the subject by quoting Nietzsche: "All things are subject to interpretation; whichever interpretation prevails at a given time is a function of power and not truth."
I'm getting a Refco-in-October-2005 kind of vibe about Overstock right now.
You may remember that the first time the naive portion of the world learned that there was anything wrong at Refco it was Monday, October 10, 2005, when Refco announced that through an internal review over the weekend it had discovered a receivable owed to the company in the amount of approximately US$430 million.
That struck many people as a rather strange thing to suddenly 'discover' and the stock price started tanking.
Over the course of that week, further revelations came out. I won't go into them now because I have no reason to believe they are useful to the analogy. But the gist of it is, the initial market sell-off was more than justified by the underlying facts. Only one week later, Refco filed for chapter 11 protection.
I'm not saying that the same will happen here. I have no idea. And Overstock's argument with its (former) auditor, Grant Thornton, seems to have involved a matter quantitatively much smaller than the sum involved in the news that broke on October 10, 2005. But this has that feel -- a bit of accounting-matter weirdness that is sufficiently unusual that one suspects there is more to it. Overstock made this announcement after the markets had closed (check the PR Newswire announcement to which I linked you above -- it gives the time of release as 5:35 EST Monday.)
The market will make a judgment soon enough.
Wednesday, April 1, 2009
PwC is Out as Overstock's Auditor
A recent Form 8-K filed by Overstock.com, the internet retailer, says that the audit committee of the board has dismissed PricewaterhouseCoopers llc as the company's independent registered public accounting firm.
The form doesn't say much as to why they have parted ways, unless this counts: "In 2008 the Company and Audit Committee discussed with PwC the existence of a material weakness in the Company’s internal control over financial reporting and disclosure controls and procedures...." Overstock has since concluded that it has "remediated" that material weakness as of December 31, 2008.
PwC has signed off on this account. "We agree with the statements concerning our firm in such Formn 8-K," it says in a brief statement attached as an exhibit to the Overstock filing.
Grant Thornton is stepping into the shoes of PwC now. Good luck to them.
A change in auditors can be a sign of underlying troubles. That is not an original observation of mine. It comes from, inter alia, the New York State Society of CPAs">.
I have, by the way, no position in any individual stock at all. My modest nest egg is invested in broad-based equity indexes. Furthermore, I am not now or ever giving stock advice. Anyone who makes investing decisions based on what they see in a blog is ... well ... presumptively imprudent.
My only previous mention of Overstock in this blog concerned the settlement of some litigation in which they were the plaintiff. You can find more discussion of this very intriguing company's history in my other blog.
So all I will say to conclude is that it is possible that in months to come the switch in auditors in March 2009 will be seen as a milestone.
The form doesn't say much as to why they have parted ways, unless this counts: "In 2008 the Company and Audit Committee discussed with PwC the existence of a material weakness in the Company’s internal control over financial reporting and disclosure controls and procedures...." Overstock has since concluded that it has "remediated" that material weakness as of December 31, 2008.
PwC has signed off on this account. "We agree with the statements concerning our firm in such Formn 8-K," it says in a brief statement attached as an exhibit to the Overstock filing.
Grant Thornton is stepping into the shoes of PwC now. Good luck to them.
A change in auditors can be a sign of underlying troubles. That is not an original observation of mine. It comes from, inter alia, the New York State Society of CPAs">.
I have, by the way, no position in any individual stock at all. My modest nest egg is invested in broad-based equity indexes. Furthermore, I am not now or ever giving stock advice. Anyone who makes investing decisions based on what they see in a blog is ... well ... presumptively imprudent.
My only previous mention of Overstock in this blog concerned the settlement of some litigation in which they were the plaintiff. You can find more discussion of this very intriguing company's history in my other blog.
So all I will say to conclude is that it is possible that in months to come the switch in auditors in March 2009 will be seen as a milestone.
Tuesday, October 14, 2008
Overstock and Gradient: Friends at Last
Overstock.com Inc., the discount retailer based in Salt Lake City, Utah, has announced the settlement of its lawsuit against Gradient Analytics, of Scottsdale Arizona.
Fans may recall that Gradient is the independent stock analyst formerly known as Camelback Research Alliance Inc. Overstock's complaint, brought in a state court in California, was that in 2005, Camelback conspired with hedge fund Rocker Partners to issue falsely negative reports about Overstock in order to benefit Rocker's short positions.
The settlement comes after an unsuccessful effort on Gradient's part to persuade California's courts to set aside the complaint on first amendment and/or SLAPP grounds. [SLAPP is an acronym for "strategic lawsuits against public participation," and a California law aimed at discouraging the practice of stifling public debate by such means.]
According to the statute: "A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim."
The word "probability" in that statute appears to mean something different for this court than it means to, say, a casino manager. The court said it isn't making a decision about which side has the better hand, but that for purposes of deciding the motion, it accepts as true all evidence favorable to the plaintiff.
Both the appellate court and the state supreme court have said that Overstock's lawsuit isn't a SLAPP, Gradient responded by filing a cross-complaint this spring, and the parties had been preparing to try the matter on the merits, with a trial date set for this coming April.
Now there's been a sudden outbreak of amity. The terms of the settlement are confidential, though Gradient put out a statement Monday, Christopher Columbus notwithstanding, saying that Overstock's accounting policies "did in fact conform with generally accepted accounting principles (GAAP) and regrets any prior statements to the contrary." Rocker Partners [or, strictly, its progeny, Copper River], remains a party.
The chairman and CEO of Overstock, Patrick Byrne, said in his company's statement: "I wish Gradient Analytics the best in their future endeavors. Overstock.com will now focus on the remaining defendants, Copper River, David Rocker, and Mark Cohodes."
Sports fans can take cheer in that last bit. There will still be a trial. The focus thereof has narrowed a bit.
Fans may recall that Gradient is the independent stock analyst formerly known as Camelback Research Alliance Inc. Overstock's complaint, brought in a state court in California, was that in 2005, Camelback conspired with hedge fund Rocker Partners to issue falsely negative reports about Overstock in order to benefit Rocker's short positions.
The settlement comes after an unsuccessful effort on Gradient's part to persuade California's courts to set aside the complaint on first amendment and/or SLAPP grounds. [SLAPP is an acronym for "strategic lawsuits against public participation," and a California law aimed at discouraging the practice of stifling public debate by such means.]
According to the statute: "A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim."
The word "probability" in that statute appears to mean something different for this court than it means to, say, a casino manager. The court said it isn't making a decision about which side has the better hand, but that for purposes of deciding the motion, it accepts as true all evidence favorable to the plaintiff.
Both the appellate court and the state supreme court have said that Overstock's lawsuit isn't a SLAPP, Gradient responded by filing a cross-complaint this spring, and the parties had been preparing to try the matter on the merits, with a trial date set for this coming April.
Now there's been a sudden outbreak of amity. The terms of the settlement are confidential, though Gradient put out a statement Monday, Christopher Columbus notwithstanding, saying that Overstock's accounting policies "did in fact conform with generally accepted accounting principles (GAAP) and regrets any prior statements to the contrary." Rocker Partners [or, strictly, its progeny, Copper River], remains a party.
The chairman and CEO of Overstock, Patrick Byrne, said in his company's statement: "I wish Gradient Analytics the best in their future endeavors. Overstock.com will now focus on the remaining defendants, Copper River, David Rocker, and Mark Cohodes."
Sports fans can take cheer in that last bit. There will still be a trial. The focus thereof has narrowed a bit.
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