After a lengthy sentencing hearing on Thursday, January 14, Joseph Collins was consigned to seven years in prison in a connection with a scheme to help executives at the defunct commodities broker Refco conceal its financial troubles. He had been convicted of his part in that scheme in July.
After the eight week trial, a mistrial was declared on some of the counts, but the jury did convict on conspiracy, two counts of securities fraud, and two counts of wire fraud.
The federal district court judge involved, Robert P. Paterson, sentenced Collins, formerly of Mayer Brown LLP partner, to the seven-year term to be followed by three years of supervised release, saying, "I think this is a case of excessive loyalty to his client," the judge said. Collins' lawyer, William J. Schwartz, vowed an appeal.
The jury deliberations appear to have been quite contentious (hence the partial mistrial). In particular, a male juror identified as "Kevin" told that court that a female juror "Abigail," had threatened to cut off his finger and to have her husband come after him (to cut off other bits?). Separately, security personnel reported having heard jurors screaming at each other.
All this passion, even to the point of threats, may have somethig to do with the idea and idealof a lawyer as a zealous advocate -- a notion deeply engrained in the culture in the U.S. Perhaps so deeply engrained that the idea that a lawyer could be too zealous in Collins' situation itself offended either Kevin or Abigail -- I don't know which.
Showing posts with label Refco. Show all posts
Showing posts with label Refco. Show all posts
Monday, January 18, 2010
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.
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