Over the last several years, this blog has detailed various illegal accounting shenanigans used by Overstock.com to materially overstate its financial performance. From Q2 2007 to Q2 2008, the company used improper EBITDA calculations to materially inflate its pro forma earnings in violation of S.E.C. Regulation G. For example, in the quarter ended June 30, 2008 Overstock.com reported a positive $1.117 million EBITDA using an improper calculation instead of a negative $0.430 million EBITDA had it complied with Regulation G. From Q4 2008 to Q3 2009, the company violated Generally Accepted Accounting Principles (GAAP) and materially inflated its reported earnings. For example, in the quarter ended December 31, 2008, the company improperly reported a $1.014 million profit by violating GAAP instead of a $0.705 million loss. In both cases I provided the company with detailed information about its accounting irregularities, but its CEO Patrick Byrne chose to vilify me rather than immediately correct its financial reports. My accounting analysis was proven correct by its later revisions of financial reports.
In September 2009, the Securities and Exchange Commission started an investigation of the company after I complained to the regulator. In March 2010, Overstock.com was forced to restate its financial reports to correct various GAAP violations identified in this blog. The S.E.C. investigation of Overstock.com is ongoing.
In the first nine months of 2011, Overstock.com reported a $16 million loss compared to only a $1.1 million loss during the previous year's nine month period. The company had revealed it was "likely" that it would not comply with certain key terms of a Master Lease Agreement (sale-leaseback transaction) with U.S. Bank at December 31, 2011 (the end of the fourth quarter), unless "current trends improve substantially." Apparently, Overstock.com's soon to be reported fourth quarter numbers continued their downward trend. In late December 2011, Overstock.com was unable to restructure its Master Lease Agreement with U.S. Bank. It paid $20.329 million to U.S. Bank which included a $1.428 million prepayment penalty to avoid default and depleted the company of much needed working capital.
On December 9, 2011, Overstock.com filed a shelf registration statement with the Securities and Exchange Commission that would allow it to sell up to $200 million of its debt securities, common stock, warrants and other securities. It appears likely that Overstock.com will need to do some sort of equity related offering in the first quarter of 2012 to stay afloat. Such an offering will likely significantly dilute the value of existing common shares, especially shares held by Chou's funds. (See "Overstock.com continued...." by Davian Letter")
As of September 30, 2011, Chou Associates Management 2,310,209 owned Overstock.com common shares and the Chou America Mutual Fund owned 515,726 shares for a total 2,825,935 shares. Since that date, Chou's mutual funds acquired an additional 434,803 Overstock.com common shares and doled out a total of $3,416,528 or about $7.86 per share. His mutual funds now own 3,260,738 Overstock.com common shares, approximately 14% of the company's total outstanding shares. A current breakdown of how those shares are held among Chou's various funds is unavailable.
Francis Chou's funds started acquiring Overstock.com common shares in 2006 and have lost approximately 60% on their $56.990 million investment to date. At lease one company insider made out like a bandit. Back on May 20 to May 24, 2010, Patrick Byrne's 100% controlled High Plains Investments LLC dumped 140,000 company shares at an average price of $22.11 per share and collected over $3 million in proceeds. As I detailed above, on Monday, Overstock.com common shares closed at $6.95 per share.
Sam E. Antar
I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.
If it weren't for the heroic efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.
There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals. Often, I refer cases to them as an independent whistleblower. I teach white-collar crime classes for various government entities, professional organizations, businesses, and colleges and universities.
I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time. My past sins are unforgivable.
I do not own any Overstock.com securities long or short and have no position in any of Francis Chou's funds.