California Court Compels Overstock.com to Turn Over Contact Information of Former Employees to District Attorney Investigating Consumer Fraud

Yesterday, a California Superior Court Judge granted a motion filed by the Alameda District Attorney to compel Overstock.com (NASDAQ: OSTK) to turn over personal contact information of former employees with possible knowledge of alleged fraudulent pricing practices by the company. The District Attorney had complained to the Court that Overstock.com "refused" to provide them with the present or last known contact information of certain former employees who are viewed as "potential witnesses" in the investigation.

On November 17, 2010, District Attorneys from seven California counties sued Overstock.com (NASDAQ: OSTK) alleging that it engaged in fraudulent pricing practices after a two year investigation. The District Attorneys are seeking at least $15 million of restitution, fines, penalties, and cost reimbursements from Overstock.com. (Download a copy of the lawsuit). The lawsuit alleged that:

9. ...Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products.

[Snip]

11. …Overstock used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers.

[Snip]

22. Often Overstock has not been determining or verifying the price other merchants charge for those identical products. Rather, Overstock has been using various misleading methods to make up its own “straw-man” prices which it claims other merchants are charging for those products, and then claiming that its own prices are significantly lower.

23. Overstock has advertised comparative prices which do not exist (i.e., simply making up the prices charged by other merchants). [Emphasis added.]

On April 1, 2011, the District Attorney of Alameda County filed a "motion to compel" Overstock.com to turn over the present or last known contact information for certain former employees with knowledge of alleged fraudulent pricing practices (Download a copy of motion here):

Specifically, the People will and do hereby move for an order compelling Overstock.com to further respond to Special Interrogatories 8 and 14 by providing current contact information for the former employees whose names Overstock disclosed in response to these Interrogatories.

The People met and conferred via email in good faith in an attempt to informally resolve this dispute and have offered to enter into a protective order as a means of satisfying Overstock.com’s asserted privacy objections. Nevertheless, Overstock.com has refused to provide the People with the information sought. [Emphasis added.]

In addition, the District Attorney's motion to compel stated:

Included in these interrogatories was a request for the name of each former employee, and their "present or last known address, telephone number, e-mail address, present or last known telephone number, and present or last known cell number.

[Snip]

...rather than provide current contact information, Overstock.com listed its corporate address and telephone number, even though the individuals in question were by definition former employees. [Emphasis added.]

Patrick Byrne intoxicated

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

Apparently, Overstock.com was using the privacy issue as a ruse to hinder the District Attorney's investigation into alleged wronging by the company. The District Attorney had "offered to enter into a protective order as a means of satisfying Overstock.com’s... asserted privacy objections." However, the company still "refused" to turn over the information to the District Attorney.

After this blog broke the news of the District Attorney's efforts to compel an uncooperative Overstock.com to turn over contact information of its ex-employees, CEO Patrick Byrne accused them of not acting in good faith:

It is not our job to host DA’s on a no-limits fishing trip, especially when they have not acted in good faith in the past. [Emphasis added.]

On May 17, 2011, Judge Robert B. Freeman rejected Overstock.com's accusations and excuses. Judge Freeman granted the California District Attorney’s motion to compel Overstock.com to turn over the contact information of certain former employees (Download a copy of Court decision here):

IT IS HEREBY ORDERED THAT:

The Motion of Plaintiff The People of the State of California (“Plaintiff”) to Compel Further Responses to First Set of Interrogatories is ruled on as follows:

At issue are the responses of defendant Overstock.com, Inc. (“Defendant”) to Plaintiff’s Special Interrogatories (“SI”) 8 and 14 which seek identifying information regarding Defendant’s former employees who set “SET COMPARISON PRICES” and those who “worked as an OVERSTOCK BUYER” during the relevant time period. Defendant supplied Plaintiff with names, but refused to provide current contact information, asserting the privacy rights of these former employees.

The Motion is GRANTED. On balance, the importance to Plaintiff of obtaining contact information of Defendant’s former employees, all of whom may be fairly characterized as potential witnesses in this case, outweighs the privacy interests that these persons have in this information. [Emphasis added.]

Rick Koerber, under Federal indictment for fraud, with Patrick Byrne

Recently, best-selling author Gary Weiss asked if Overstock.com is trying to buy its way out of legal troubles in California:

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

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

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

[Snip]

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

Mark Shurtleff, have you thought of relocating? [Emphasis added.]

Back in 2007, Patrick Byrne even paid off Utah State Attorney General Mark Shurtleff to write a letter defaming me by falsely claiming that I broke certain agreements with his office. I went to Utah at my own expense and took no fees to train Shurtleff’s staff on combating white collar crime. However, taped phone conversations with Chief Deputy Attorney General Kirk Torgensen and Deputy Attorney General Richard Hamp revealed that Shurtleff lied to defame and discredit me just days after receiving $5,000 from Overstock.com.

A San Francisco Chronicle blog complained:

To add insult to the injury of a terrible $7 million naming rights deal with e-commerce retailer Overstock.com that was reported at Zennie62.com, comes the revelation that the agreement was stuck while the Internet firm was and is embroiled in a lawsuit involving the State of California, and the County of Alameda, as well as six other California counties.

[Snip]

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? 

Ongoing SEC investigation

Overstock.com also has to contend with an ongoing investigation by the Securities and Exchange Commission (SEC) into securities law violations by the company. In 2009, this blog identified certain violations of Generally Accepted Accounting Principles (GAAP) by Overstock.com that allowed it to fabricate a Q4 2008 profit rather than a properly reported loss.

I sent emails to Overstock.com and the Securities and Exchange Commission alerting them about the company’s illegal accounting practices. I urged the company to restate its financial reports to correct its improper accounting practices. Instead of properly complying with GAAP, Overstock.com continued to materially overstate its income in Q1, Q2, and Q3 2009.

CEO Patrick Byrne personally attacked me on a stock market chat board, during various earnings calls, and in the press in an effort to discredit me. Byrne even hired internet stalker Judd Bagley to interfere with my divorce and pretext my children and relatives after I pointed out the company's accounting violations.

In September 2009, the SEC started investigating Overstock.com. In October 2009, the company fired Grant Thornton as its auditor after it finally agreed with my recommendation to restate its financial reports. In March 2010, Overstock.com finally admitted that it violated GAAP and restated its financial reports to correct its violations, as I recommended a year earlier.

Written by:

Sam E. Antar

Recommended reading: Gary Weiss - Novastar and Overstock in the News


Disclosure

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 about white-collar crime for professional organizations, businesses, and colleges and universities.

Recently, I exposed GAAP violations by Overstock.com which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

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.

I do not own any Overstock.com securities long or short. My investigation of this company is a freebie for securities regulators to try to get me into heaven, though I doubt I will ever get there. My past sins are unforgivable.