Thursday, November 29, 2007

Utah Attorney General Mark Shurtleff Caught Lying on Behalf of Overstock.com and Patrick Byrne

In a previous item on my blog dated November 19, 2007 and entitled, "Utah Attorney General Mark Shurtleff Panders to Campaign Contributor Overstock.com & CEO Patrick Byrne and Defames Critic," I responded to Utah Attorney General Mark Shurtleff's deliberate efforts to defame me on behalf of campaign contributor Overstock.com (NASDAQ: OSTK) and its CEO Patrick Byrne. Utah Attorney General Mark Shurtleff has ignored my requests to categorically retract his letter and issue a public apology.

Enclosed is a taped conversation between Deputy Attorney General Richard Hamp and I that categorically refutes the deliberate lies of Utah Attorney General Mark Shurtleff. Listen to it for yourself. The other person in the tape that he refers to as "Kirk" is Kirk Torgensen, the Chief Deputy Utah Attorney General.

Utah Attorney General Mark Shurtleff colluded with a public company (Overstock.com) that is a campaign contributor and it's CEO Patrick Byrne, both of whom are under investigation by the SEC, to disparage, defame, and discredit me.

The above taped conversation has been delivered to the Securities and Exchange Commission. Other taped conversations will be delivered to the Securities and Exchange Commission and posted on this blog in the near future. Both New York and Utah are "one party" consent states and as such, the recording of my phone conversations was legally permissible.

Written by,

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

Update (12/13/07): Please read my blog post entitled, "Open Letter to Utah Attorney General Mark Shurtleff Re: Your lies on behalf of campaign contributor Overstock.com."

Update (08/18/08): Please read my blog post entitled, "Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne Pays Utah Attorney General Mark Shurtleff to Defame a Blogger." Just a few days prior to Utah Attorney General Mark Shurtleff's defamation of me in his "open letter" and Overstock.com's subsequent press release, Shurtleff received a $5,000 so-called campaign contribution from Overstock.com. In addition, new details of phone conversations with Deputy Attorney General Richard Hamp and Chief Deputy Attorney General Kirk Torgensen verify that Utah Attorney General Mark Shurtleff lied on behalf of Overstock.com to defame me.

Monday, November 26, 2007

Overstock.com and CEO Patrick Byrne: Securities and Exchange Commission Regulation G Violations

A careful analysis of Securities and Exchange Commission Regulation G, guidance provided by the SEC on Regulation G, and Overstock.com's financial disclosures raises a serious question as to whether or not Overstock.com misused certain non-GAAP measures in violation of certain provisions of Regulation G. As detailed, in a previous blog post, entitled "Did Overstock.com CEO Patrick Byrne cook the company's numbers and mislead investors? (Part 4)," Overstock.com (NASDAQ: OSTK) added a new disclosure in its third quarter fiscal year 2007 10-Q that was absent from its third quarter 8-K, second quarter 10-Q, and second quarter 8-K about Regulation G. The disclosure relates to the applicability of Regulation G.

In accordance with Section 401 (b) of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission established Regulation G which governs the use of non-GAAP financial disclosures by public companies. Months later, staff members in the Division of Corporation Finance provided guidance for implementing Regulation G in a document entitled, "Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures."

Regulation G Defines Non-GAAP Measures

In particular, Regulation G defines the following as a non-GAAP measure:

An example of a non-GAAP financial measure would be a measure of operating income that excludes one or more expense or revenue items that are identified as "non-recurring." Another example would be EBITDA, which could be calculated using elements derived from GAAP financial presentations but, in any event, is not presented in accordance with GAAP.

Note: Bold print and italics added by me.

Based on the above definition, Overstock.com has used three non-GAAP financial measures in its latest quarterly filings with the Securities and Exchange Commission:

  • Operating loss before restructuring (second quarter 8-K and 10-Q and third quarter 10-Q)
  • Earnings before depreciation, interest, taxes, depreciation, and amortization (second quarter 8-K and 10-Q and third quarter 8-K and 10-Q) or EBITDA
  • Adjusted EBITDA or EBITDA before restructuring costs (second quarter 8-K and 10-Q)

Possible Regulation G Violations by Overstock.com

Regulation G made amendments to Item 10 of Regulation S-K and Item 10 of Regulation S-B to provide additional guidance to registrants that include non-GAAP financial measures in Commission filings. Now, according to Item 10 of Regulation S-K and Item 10 of Regulation S-B:

The prohibition on adjusting a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur will make clear that such an adjustment is prohibited only when (1) the nature of the charge or gain is such that it is reasonably likely to recur within two years, or (2) there was a similar charge or gain within the prior two years....

Note: Bold print and italics added by me.

Additionally, according to the SEC’s "Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures" the following practices are prohibited:

Item 10(e) of Regulation S-K prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years.

Note: Bold print and italics added by me.

Thus, Regulation G provides two tests to determine if an item can be labeled non-recurring, infrequent or unusual:

(1) the nature of the charge or gain is such that it is reasonably likely to recur within two years, or
(2) there was a similar charge or gain within the prior two years

Did Overstock.com identify its restructuring costs as "non-recurring, infrequent, or unusual" in its third quarter fiscal year 2007 financial disclosures?

As described above, in its recent third quarter fiscal year 2007 10-Q, Overstock.com had presented a non-GAAP financial measure, known as "operating loss before restructuring." In the same 10-Q, Overstock.com management appears to be implying that the company's restructuring costs are non-recurring, infrequent or unusual items. I demonstrate this fact later.

Patrick Byrne's comments during Overstock.com's third quarter earnings conference call also clearly indicate that the company intends to portray its restructuring costs as non-recurring, infrequent, or unusual in nature. This fact is also demonstrated later.

For now, what is important to realize is that Overstock.com's restructuring costs did not meet the criteria established under Regulation G for use in a non-GAAP financial measure, since there were similar restructuring costs "within the prior two years" and because management expected similar costs to occur in the future.

Disclosures in the Third Quarter 10-Q

Overstock.com's disclosure about "restructuring" expense in the "Notes to Unaudited Consolidated Financial Statements" section of its third quarter 10-Q, clearly attempts to portray the company’s restructuring costs as "non-recurring, infrequent, or unusual," and unlikely to recur in the future. That disclosure is as follows:

Restructuring Expense

During the fourth quarter of 2006, the Company commenced implementation of a facilities consolidation and restructuring program designed to reduce the overall expense structure in an effort to improve future operating performance. The facilities consolidation and restructuring program was substantially completed by the end of the second quarter of 2007. There were no restructuring expenses during the third quarter of 2007.

Note: Bold print and italics added by me.

Certain wording in “Management’s Discussion and Analysis” (or the “MD&A” section) also clearly indicates that the company’s use of the non-GAAP measure “operating loss before restructuring” is intended to reflect management’s assertion that Overstock.com’s restructuring costs are "non-recurring, infrequent, or unusual" in nature.

Commentary—Operating loss. Our operating loss for the third quarter was $4.9 million, down 79% from $23.2 million in 2006. Over the first nine months of the year, our operating loss was $36.1 million, down 32% from $52.9 million over the same period last year. The 2007 operating loss includes $12.3 million of restructuring costs ($6.1 million in Q1 and $6.2 million in Q2). Before restructuring costs, the operating loss was $23.8 million for the nine months ended September 30, 2007, a $29.1 million year-over-year improvement. Restructuring costs primarily represent our efforts to reduce our overall expense structure through the consolidation of our corporate office, data centers and warehouse facilities. Therefore, we believe that discussing our operating loss before restructuring costs (a non-GAAP measure) provides useful information to us and investors because it is a representation of the expense structure of the company if we had not originally incurred these costs. We use this measure to monitor our progress in reducing our overall expense structure, including the comparison of operating results in the current year to similar periods in the previous year. See the following table for operating loss before restructuring costs (in thousands):

Item

Three months ended September 30, 2006

Three months ended September 30, 2007

Nine months ended September 30, 2006

Nine months ended September 30, 2007

Operating loss

$ (23,152)

$ (4,874)

$ (52,881)

$ (36,113)

Add back: restructuring

-

-

-

12,283

Operating loss before restructuring

$ (23,152)

$ (4,874)

$ (52,881)

$ (23,830)

Thus, in what appears to be a direct violation of Regulation G, the company has implied that its restructuring charges are somehow nonrecurring in nature. Overstock.com has lost money in every year of its existence, the company has reported losses from discontinued operations in the last three fiscal years, it has reported restructuring charges in the last two years, and is likely to incur additional restructuring charges in future years.

Obligatory Reference to Regulation G

As if to somehow validate its incredulous classification of restructuring costs, Overstock.com also added an obligatory reference to Regulation G in the third quarter 2007 10-Q. The new disclosure, copied below, also appears in the MD&A section of the filing:

Non-GAAP Financial Measure

Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations regulate the disclosure of certain non-GAAP financial information. Our measure of “EBITDA” is a non-GAAP financial measure. EBITDA, which we reconcile to “Operating loss” in our income statement, is earnings before interest, taxes, depreciation, amortization and stock-based compensation. EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. EBITDA reflects an additional way of viewing our results that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our results. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. Our discussion below (i) explains why management believes that presentation of EBITDA provides useful information to investors regarding our financial condition and results of operations, (ii) to the extent material, discloses the additional purposes, if any, for which management uses this non-GAAP measure, and (iii) provides a reconciliation of this measure to our operating losses.

Curiously, the same disclosure was absent from previous filings submitted to the Securities and Exchange Commission. Why didn't Overstock.com make this Regulation G disclosure earlier? Was Overstock.com attempting to play a game of catch up? I’ll get back to this in a minute.

Whatever the motive, the company went on to falsely state that EBITDA is also a “reasonable measure of actual cash used or generated by the operations of the business.” The disclosure continues:

Commentary—EBITDA (non-GAAP). EBITDA for the third quarter of 2007 was $4.1 million, an improvement from $(14.4 million) in Q3 2006. For the first nine months of the year, EBITDA was $(8.3 million), $20.0 million better than the $(28.3 million) in the previous year. We believe that, because our current capital expenditures are significantly lower than our depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors. During 2005 and 2006, we made significant investments in our systems and overall infrastructure, and as a result will have approximately $30 million of related depreciation expense in 2007. However, we expect to spend less than $5 million in new capital expenditures during 2007, and therefore we use EBITDA as a reasonable measure of actual cash used or cash generated by the operations of the business.

But, EBITDA was a lousy measure of “actual cash used or generated by the operations of the business” during the third quarter. Third quarter cash from operating activities was negative, as it has been in the vast majority of quarters since inception.

The remainder of Overstock.com’s misleading EBITDA disclosure, from the MD&A section, is copied below:

For further details on EBITDA, see the reconciliation of this non-GAAP measure to our GAAP operating loss as follows (in thousands):

Item

Three months ended September 30, 2006

Three Months ended September 30, 2007

Nine months ended September 30, 2006

Nine months ended September 30, 2007

Operating loss

$ (23,152)

$ (4.874)

$ (52,881)

$ (36,113)

Add:
Depreciation and amortization

$ 7,776

$ 7,080

$ 20,802

$22,825

Stock-based compensation

$ 1,042

$ 1,176

$ 3,088

$ 3,386

Stock-based compensation to consultants for service

$ (3)

$ 140

$ 31

$ 280

Stock-based compensation relating to performance shares

-

$ 350

-

$ 350

Treasury stock issued to employees for compensation

$ 67

$ 213

$ 679

$ 928

EBITDA

$ (14,270)

$ 4,085

$ (28,281)

$ (8,344)

Note: Bold print and italics added by me.

More Pro Forma Hype (and Potential Violations) from the Conference Call

During Overstock.com’s third quarter earnings conference call, CEO Patrick Byrne also clearly asserted that the company’s restructuring costs were non-recurring, infrequent or unusual items when he called them “one-time charges.” The exact quote is copied here:

We returned to positive EBITDA and there was one-time charges in the past -- restructuring charges really did turn out to be restructuring charges. And we have positive trailing 12 months cash flow and I think that only goes up substantially from here.

Note: Bold print and italics added by me.

In case there is any question about Byrne’s intent, he repeats the same assertion at a later point in the call. This time the CEO claimed that the company’s restructuring charges were “not going to happen again next year.” Byrne’s comment in its entirety follows:

Remember, by the way, that there’s, in comparison with this year, there is $16 million, $17 million of what we called restructuring this year and it really is restructuring in the sense of it is not going to happen again next year.

Note: Bold print and italics added by me.

Regardless of the CEO’s explanation, the above assertions fly in the face of Regulation G. The reason is that Overstock.com actually fails both of the SEC’s tests used to determine whether or not a non-GAAP measure is allowable.

Are Overstock.com’s restructuring charges reasonably likely to recur within two years?

While Patrick Byrne had claimed that Overstock.com’s restructuring charges were “one-time charges” and that such costs are “not going to happen again next year,” he simultaneously revealed the possibility of future restructuring charges, rather than the reasonable likelihood of such costs in future quarters. Just a few brief moments later, during the very same call, Mr. Byrne states that:

There is only one possible thing that could -- well, you never know what’s possible, but the only thing that we would consider is if we can move, if we can find a tenant for our building and we can move over into our warehouse, we could save $4 million or $5 million a year. But if we did that, there would probably be some CapEx and restructuring.

Note: Bold print and italics added by me.

I guess we can chalk this one up to Mr. Byrne’s ability to talk out of both sides of his mouth. The point is, this statement clearly points to a failure of the first of the SEC’s two tests.

Did Overstock.com report restructuring costs “within the prior two years…” in its financial reports?

If only one of the SEC’s tests is failed, then the non-GAAP measure in question is not allowed. But, for good measure, Overstock.com also failed the second test. During at least the prior two years, Overstock.com reported restructuring charges.

During the prior two years, Overstock.com reported restructuring charges:

  • Q4 2006: $5.674 million
  • Q1 2007: $6.089 million
  • Q2 2007: $6.194 million

The inescapable conclusion is that Overstock.com could not use the non-GAAP financial measure, “operating loss before restructuring” in its third quarter 10-Q. Moreover, it appears that the company used this measure to smooth or overstate the profits reported in its third quarter 10-Q—in an apparent violation of Regulation G.

Patrick Byrne’s recent statements (above) about Overstock.com’s restructuring charges, contradict earlier statements by him about the use of restructuring costs as non-recurring items

Now consider whether it is possible to speak out of three sides of one’s mouth. About two years earlier, in the second quarter 2005 Form 8-K containing the company’s earnings announcement, Patrick Byrne chided other companies for their propensity to report one-time charges which “usually turn out not to be one-time any” and their focus on non-GAAP measures.

I worked at First Manhattan in the early 1990's. One of the first lessons I was taught was to watch out for companies with "one-time" charges, for rarely, if ever, did they turn out to be truly, "one-time." Subsequent experience confirmed this. Of course, the world had not really discovered "restructuring charges," let alone the mantra of "pro forma accounting" that the Internet would later spawn ("EBE: Earnings Before Expenses," as one wag put it). I was similarly discouraged from calculating EBITDA ("That cash either counts the day it went out the door when you bought that ice machine, or as it depreciated, and GAAP depreciation turns out to be a pretty good approximation of how equipment really depreciates," I was told).

The common failure of these variations is, it seems to me, this: they start by showing a way to look at a financial statement excluding certain events, but lead people to pretend that those events are not real. "EBITDA" might be a useful step in projecting the future cash needs of a business, but it misleads people into thinking that "depreciation" is not a real expense. Similarly, "restructuring" and "one-time" charges may in fact be only one-time charges, but that does not make them "not real" (and they usually turn out not to be "one-time" anyway).

Note: Bold print, italics, and underlines added by me.

Now how on earth can this prior assertion be reconciled with Patrick Byrne’s current shenanigans? It appears that Patrick Byrne uses non-GAAP financial measurements as it suits him, depending on his agenda at the time. This looks remarkably like the situation that I wrote about previously, in which Mr. Byrne interchangeably used both GAAP and non-GAAP sales figures prior to Overstock.com’s IPO. The trouble was, during that period he used these two sales measures interchangeably without ever telling the user which measure he was using, leading one to conclude that Overstock’s sales were much higher than they really were at the time.

Did Overstock.com Determine it Violated Regulation G During the Second Quarter?

Another curious change in the third quarter 2007 10-Q (below) is that Overstock.com did not disclose the non-GAAP financial measure known as "Adjusted EBITDA," which it had presented in the second quarter. Overstock.com’s version of “adjusted EBITDA” conveniently eliminates restructuring costs, making second quarter 2007 EBITDA appear miraculously positive for the quarter. But the presentation of adjusted-EBITDA also flies in the face of Regulation G. Therefore I also have to ask: Did Overstock.com subsequently realize it had made a mistake when it used "Adjusted EBITDA" in its second quarter 8-K and 10-Q? I wonder what will happen in the fourth quarter after its auditors review Regulation G more carefully?

The Second Quarter Faux Pas

In its second quarter 2007 8-K (filing its earnings press release) and 10-Q, Overstock.com presented two non-GAAP financial measures, known as "operating loss before restructuring" and "Adjusted EBITDA" that eliminated the effect of restructuring charges. The financial disclosures in its second quarter 10-Q also portrayed the company’s restructuring costs as "infrequent or unusual" items. Comments made by Patrick Byrne and Jason C. Lindsey during the second quarter earnings conference call further assert that Overstock.com's restructuring costs were "infrequent or unusual" items. However, Overstock.com's second quarter restructuring costs did meet not the criteria established under Regulation G for use in a non-GAAP financial measure, since (1) there were similar restructuring costs "within the prior two years" and (2) management readily admitted that there are likely to be more restructuring costs in upcoming quarters.

Apparent Violation of Regulation G in Second Quarter “Notes”

Disclosures in the "Notes to Unaudited Consolidated Financial Statements" section of its second quarter 10-Q, make the claim that the company’s "facilities consolidation and restructuring program should be substantially completed during calendar year 2007.” (Also, in the third quarter 10-Q, Overstock.com claimed that its "restructuring program was substantially completed by the end of the second quarter.”) But these disclosures run afoul of Regulation G because there were similar restructuring costs "within the prior two years." In other words, Overstock.com failed the SEC’s first test.

The above violation also makes the remainder of Overstock.com’s disclosures pertaining to EBITDA and adjusted-EBITDA materially misleading. The remaining disclosures are copied below:

Commentary—Operating loss. Our operating loss for the second quarter was $13.5 million, down from $15.6 million in 2006. Over the first six months of the year, our operating loss was $31.2 million, up from $29.7 million over the same period last year. However, the 2007 operating loss includes $12.3 million of restructuring costs ($6.1 million in Q1 and $6.2 million in Q2). Before restructuring costs, the operating loss was $19.0 million over the first half of this year, a $10.7 million year-over-year improvement. Restructuring costs primarily represent our efforts to reduce our overall expense structure through the consolidation of our corporate office, data centers and warehouse facilities. Therefore, we believe that discussing our operating loss before restructuring costs (a non-GAAP measure) provides useful information to us and investors because it is a representation of the expense structure of the company if we had not originally incurred these costs. We use this measure to monitor our progress in reducing our overall expense structure, including the comparison of operating results in the current year to similar periods in the previous year. See the following table for operating loss before restructuring costs (in thousands):

Item

Three months ended June 30, 2006

Three months ended June 30, 2007

Six months ended June 30, 2006

Six months ended June 30, 2007

Operating loss

$ (15,550)

$ (13,519)

$ (29,742)

$ (31,239)

Add back: restructuring

-

$ 6,194

-

12,283

Operating loss before restructuring

$ (15,550)

$ (7,325)

$ (29,742)

$ (18,956)

Commentary—EBITDA (non-GAAP). EBITDA for the second quarter of 2007 was $(4.2 million), an improvement from $(7.5 million) in Q2 2006. For the first six months of the year, EBITDA was $(12.4 million), $1.6 million better than the $(14.0 million) in the previous year. We believe that discussing EBITDA at this stage of our business is useful to us and investors, because our current capital expenditures are significantly lower than our depreciation levels. During 2005 and 2006, we made significant investments in our systems and overall infrastructure, and as a result will have approximately $30 million of related depreciation expense in 2007. However, we expect to spend less than $5 million in new capital expenditures during 2007, and therefore we use EBITDA as a reasonable measure of actual cash used or cash generated by the operations of the business.

Although EBITDA was negative $4.2 million in the second quarter, EBITDA excluding restructuring costs (“adjusted EBITDA”, a non-GAAP measure) was a positive $2.0 million in the second quarter, and $(146,000) year-to-date. We believe that discussing adjusted EBITDA also provides useful information to us and investors, as we use this measure as a representation of cash used or cash generated from the operations of the business if we had not originally incurred these costs. For further details on EBITDA and adjusted EBITDA, see the reconciliation of these non-GAAP measures to GAAP operating loss as follows (in thousands):

Item

Three months ended June 30, 2006

Three Months ended June 30, 2007

Six months ended June 30, 2006

Six months ended June 30, 2007

Operating loss

$ (15,550)

$ (13,519)

$ (29,742)

$ (31,239)

Add:
Depreciation and amortization

$ 6,876

$ 7,974

$ 13,026

$15,745

Stock-based compensation

$ 1,088

$ 1,137

$ 2,046

$ 2,210

Stock-based compensation to consultants for service

$ (9)

$ 135

$ 34

$ 140

Treasury stock issued to employees for compensation

$ 105

$ 113

$ 612

$ 715

EBITDA

$ (7,490)

$ (4,160)

$ (14,024)

$ (12,429)

Add: Restructuring

-

$ 6,194

-

$ 12,283

Adjusted EBITDA

$ (7,490)

$ 2,034

$ (14,024)

$ (146)

Conference Call Disclosures Also Point to Violations of Regulation G

Not to be outdone, Overstock.com also succeeds in failing the SEC’s second test during the second quarter conference call. During the second quarter 2007 earnings conference call, Patrick Byrne claimed:

I don’t see any other major restructuring charges to come.”

However, Jason C. Lindsey then contradicted Patrick Byrne's claim by stating that,

“There might be one or two other things coming but I don’t think there’s any really big things.”

Note: Bold print and italics added by me.

So again Overstock.com fails both of the SEC’s tests with regard to the exclusion of costs from non-GAAP measures. At least this time Patrick Byrne wasn’t speaking out of both sides of his mouth, he needed a little help from Jason Lindsey.

Is There Any Way that Overstock’s Disclosure was Consistent with Regulation G?

For the sake of argument, there is one remaining claim Overstock.com could attempt to make to support its non-GAAP presentations. Unfortunately, this one doesn’t work out well either. But, for the sake of argument, let’s assume that Overstock.com might attempt to argue that they were actually eliminating recurring charges in the third quarter presentation of “operating loss before restructuring charges” and the second quarter presentation of “adjusted EBITDA”. (This assumption contradicts other statements made by management in its SEC filings and conference calls. But, let’s ignore the inconsistencies for a minute.)

The Securities and Exchange Commission’s “Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures” also addresses when it is acceptable to eliminate recurring items from a non-GAAP measure. The SEC addresses the issue by first posing the following question:

Question 8: Item 10(e) of Regulation S-K prohibits adjusting a non-GAAP financial performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. Is it appropriate to eliminate or smooth an item that is identified as "recurring"?

Note: Bold print and italics added by me.

The SEC’s guidance is provided in the answer that follows:

Answer 8: Companies should never use a non-GAAP financial measure in an attempt to smooth earnings. Further, while there is no per se prohibition against removing a recurring item, companies must meet the burden of demonstrating the usefulness of any measure that excludes recurring items, especially if the non-GAAP financial measure is used to evaluate performance.

It is permissible and may well be necessary to identify, discuss, and analyze material restructuring charges and other items, whether they are recurring or non-recurring, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Depending on the nature and materiality of the charge or other item, it will likely be necessary to discuss the nature of such charges or other items, their recurring or non-recurring nature, their significance to an investor in evaluating the company's financial condition and/or results of operations and whether they relate to material known trends, events or uncertainties that must be disclosed.

Whether an item may, or indeed must, be discussed in MD&A is a different question from whether it may be eliminated or adjusted in connection with a non-GAAP financial measure. Whether a non-GAAP financial measure that eliminates a recurring item or items from the most directly comparable GAAP financial measure is acceptable depends on all of the facts and circumstances. Such measures more likely would be permissible if management reasonably believes it is probable that the financial impact of the item will disappear or become immaterial within a near-term finite period. In addition, inclusion of such a measure may be misleading absent the following disclosure:

  • the manner in which management uses the non-GAAP measure to conduct or evaluate its business;
  • the economic substance behind management's decision to use such a measure;
  • the material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure;
  • the manner in which management compensates for these limitations when using the non-GAAP financial measure; and
  • the substantive reasons why management believes the non-GAAP financial measure provides useful information to investors.

Similar considerations may apply under Item 12 of Form 8-K.

Note: Bold print and italics added by me.

The question is, do any of Overstock.com’s non-GAAP measures, operating loss before restructuring” (second and third quarters), EBITDA (second and third quarter) or “adjusted EBITDA” (second quarter) qualify as allowable measures under SEC guidance? (Hint: The answer contains two letters.)

According to the above SEC guidance, if Overstock.com had considered its restructuring charges to be recurring charges and not "infrequent or unusual" items when presenting the non-GAAP financial measure known as “operating loses before restructuring,” the company would be required to make certain additional disclosures (see above) to avoid having such a non-GAAP financial measure considered as a “misleading” disclosure. In particular, Overstock.com was required to disclose, “the material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure.”

Overstock.com does make such a disclosure (see above) relating to EBITDA in its third quarter fiscal year 2007 10-Q. However, Overstock.com's EBITDA disclosure in the company's third quarter 10-Q does not eliminate restructuring charges unlike its other non-GAAP financial measures: Operating loss before restructuring (second and third quarter 10-Q) and Adjusted EBITDA (second quarter 10-Q). Overstock.com failed to disclose, “the material limitations associated with use of the non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure” relating to both "Operating loss before restructuring" and "Adjusted EBITDA."

Overstock.com cannot have it two ways. Either Overstock.com considered its restructuring costs as "non-recurring, infrequent or unusual" item and it violated Regulation G for use in a non-GAAP financial measure that eliminates nonrecurring items, or if such restructuring costs were considered as recurring, then the company violated Regulation G by failing to disclose the limations of such measures. (Of course it is clear by management’s other assertions that Overstock.com is claiming that its restructuring charges are nonrecurring—Regulation G be damned.)

“Merely labeling an item as non-recurring does not make it so”

Now consider the absurd. What if Overstock.com thought it was acceptable to label a regularly occurring item as non-recurring? To hammer the point home, the SEC even goes so far as to specifically prohibit this kind of tomfoolery. This is no joke. The SEC's “FAQs” to Regulation G also provides the following question and answer guidance:

Question 9: Is it permissible to use non-GAAP financial measures that eliminate recurring restructuring charges or other recurring items if those charges or items are not labeled as non-recurring?

The SEC’s guidance:

Answer 9: For many years, staff practice has been to object to the use of non-GAAP financial measures that eliminate the effect of recurring items by describing them as non-recurring. Management should consider the substantive nature of the item when determining whether to classify it as recurring or non-recurring. Merely labeling an item as non-recurring does not make it so.

Whether a company can present a non-GAAP financial measure that eliminates recurring restructuring charges will depend on all the facts and circumstances. However, if there is a past pattern of restructuring charges, no articulated demonstration that such charges will not continue and no other unusual reason that a company can substantiate to identify the special nature of the restructuring charges, it would be difficult for a company to meet the burden of disclosing why such a non-GAAP financial measure is useful to investors. In such circumstances, Item 10(e) of Regulation S-K would not permit the use of the non-GAAP financial measure. Similar considerations may apply under Item 12 of Form 8-K.

Note: Bold print and italics added by me.

As detailed above, in both Overstock.com’s 10-Q and in management’s comments during the second and third quarter earnings conference calls, the company asserts that its restructuring costs are non-recurring items—despite actually failing both of the SEC’s tests for determining whether an item is nonrecurring. So, maybe Overstock.com thought this was an acceptable practice? Well, SEC guidance related to Regulation G even appears to explicitly preclude this sort of doublespeak. To quote the SEC, “merely labeling an item as non-recurring does not make it so.”

Driving the Final Nail in the Coffin

How can such “recurring restructuring charges,” under the SEC’s guidance (above), be considered “unusual” of a “special nature” for a company like Overstock.com that has lost money in every year of its existence and has a such a long history of failed business ventures? For a company like Overstock.com, can any restructuring charge ever be considered nonrecurring, unusual, or infrequent in nature?

Overstock’s risk factors certainly make it clear that the pattern of losses may be expected to continue.

We have a history of significant losses. If we do not achieve profitability, our financial condition and our stock price could suffer.

We have a history of losses and we may continue to incur operating and net losses for the foreseeable future. We incurred net losses of $4.7 million and $39.9 million for the three and nine months ended September 30, 2007. As of September 30, 2007, our accumulated deficit was $238.5 million. We will need to generate significant revenues to achieve profitability, and we may not be able to do so. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenues grow more slowly than we anticipate, or if our operating expenses exceed our expectations, our financial results would be harmed.

Note: Bold print and italics added by me.

The company has continuously engaged in highly speculative and money losing ventures that continue to this day. Overstock.com has gone through frequent and continuous changes in its operating structure which has led to consistent charges for restructuring and discontinued operations. Such speculative ventures have included OverstockB2B, collaborative filtering, m-commerce, Travel, Auctions, and Design Your Own Jewelry. All of these speculative ventures have produced losses and consumed significant amounts of shareholder capital.

To make matters worse, the highly speculative business ventures continue to this day. For example, Overstock Cars apparently hasn’t resulted in any profits. Overstock.com’s Community Site Business has not produced any profits, either. In fact, many parts of Overstock.com’s Community Site business are still in beta. Overstock.com’s Community Site Business has recently been added to the company’s list of risk factors in its recent third quarter fiscal year 2007 10-Q. Regarding possible risks from its Community Site Business, Ovestock.com discloses:

Our entry into this business will require us to devote substantial financial, technical, managerial and other resources to this site. It is uncertain whether the business will benefit financially from the Community site. The Community site will also expose us to additional risks, including legal and regulatory risks, including, but not limited to, legal actions for possible intellectual property infringement, and claims for libel. Additionally, our entry into the Community site service will require us to compete with established businesses having substantially greater experience

Note: Bold print and italics added by me.

In addition, Overstock.com’s risk factors section in both second and third quarter 10-Qs, lists many other risks that may possibly lead future restructuring charges.

In fact, the opening paragraph of Overstock.com's "risk factors" disclosure in the third quarter 10-Q contains added cautionary language, absent in the company's previous 10-Q:

Please consider the following risk factors carefully. If any one of the following risks were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. In addition, these are not the only risks we face.

Note: Bold print, italics, and underlines added by me.

However, in its second quarter fiscal year 2007 10-Q, Overstock.com's opening "risk factors" paragraph stated:

These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially. These forward-looking statements speak only as of the date of this report and, except as required by law, we undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

Note: Bold print and italics added by me.

The contrast in risk factor disclosures, detailed above, is curious considering that Overstock.com in its third quarter fiscal year 10-Q disclosed that its restructuring program "was substantially completed by the end of the second quarter of 2007," while its second quarter 10-Q the company claimed that "restructuring program should be substantially completed during calendar year 2007." Why did Overstock.com include the added cautionary language in its "risk factors" disclosure? Was Overstock.com playing another game of catch up?

Whether Overstock.com’s restructuring charges are considered as recurring or non-recurring by the company, it is difficult to see how the company’s disclosures are in compliance with Regulation G or SEC guidance concerning Regulation G. The company apparently fails to meet the SEC criteria under any conceivable scenario.

So it appears that, the more things change, the more they stay the same. Overstock.com continues to use pro forma metrics to suit its own agenda, SEC regulations be damned. Even the CEO’s own prior assertions are set aside in the hope of reporting some modicum of profit, real or imagined.

To be continued....

Written by:

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

Added note:

No response yet from Utah Attorney General Mark Shurtleff about his efforts to defame me on behalf of campaign contributor Overstock.com and its CEO Patrick Byrne.

Monday, November 19, 2007

Utah Attorney General Mark Shurtleff Panders to Campaign Contributor Overstock.com & CEO Patrick Byrne and Defames Critic

Anatomy of a Smear

Utah Attorney General Mark Shurtleff's deliberate efforts to defame me on behalf of Overstock.com and its CEO Patrick Byrne have placed a dark cloud on his ethics and integrity as the chief legal officer of the state of Utah. In an interview with the Deseret News, published a fews years ago, Utah Attorney General Mark Shurtleff, once claimed:

But as attorney general I have repeatedly demonstrated that campaign contributions make absolutely no difference in how I do my job.

Note: Bold print and italics added by me.

However, if you a public company under investigation by the Securities and Exchange Commission like Overstock.com, it takes only about $10,000 in campaign contributions to call in a favor from Utah Attorney General Mark Shurtleff. Like Crazy Eddie, Mark Shurtleff's prices are INSAAAANE!

On November 14, 2007 Overstock.com issued a press release concerning a blog item that I had written a day after my recent fraud presentation at the Utah Attorney General's Office on October 31, 2007 for its 14th Annual White Collar Crime Conference. Utah Attorney General Mark Shurtleff had written a letter dated November 8, 2008 (his date is one year ahead of time) on behalf Overstock.com and its CEO Patrick Byrne, a campaign contributor under investigation by the Securities and Exchange Commission that contains lies, distortions, false, and misleading information, in an effort to disparage, defame, discredit, and smear me. As is always my policy, I charged no fees and took no cost reimbursements from the Utah Attorney General's office for my fraud presentation, as I traveled from New York to Utah and back over two days and paid for everything out of pocket.

Utah Attorney General Mark Shurtleff has claimed that I violated a certain agreement and understanding that I not refer to my speaking engagement at his crime conference in my blog posts about Overstock.com. Mark Shurtleff claims that he tried to have his letter posted as a comment to my blog item mentioning his white collar crime conference and my meeting afterwards with the SEC about Overstock.com. He claims that I "apparently refused" to publish his letter in my blog. He has claimed that I used his white collar crime conference for "self-promotion as a person who can detect and expose errant practices of public companies." All of Mark Shurtleff's above claims are not true.

I made no such agreements with the Utah Attorney General's office, which was confirmed to me by certain individuals in that office, to avoid any mention of their white collar crime conference in relation to Overstock.com in my blog, web site, or any other venue outside the fraud conference. My only agreement with the Utah Attorney General's office, which was also confirmed to me by certain individuals from that office, was not to mention Overstock.com during my fraud presentation, unless asked by a participant in the audience. I abided by that agreement.

It was Mark Shurtleff's office that invited me to speak at their 14th Annual White Collar Crime Conference after reading my blog and whitecollarfraud.com web site and watching my appearance on CNBC's Business Nation aired in June 2007. The Utah Attorney General's Office promoted my appearance at their white collar crime conference issuing a flyer and a press release. I simply listed my speaking appearance on my whitecollarfraud.com web site. In my blog item referred to in Shurtleff's letter, I wrote that after my fraud presentation at his conference, I visited the SEC to discuss Overstock.com.

Utah Attorney General Mark Shurtleff claims that:

Our invitation, and his presentation at our conference, should not to be taken as any comment on Mr. Antar's self-promotion as a person who can detect and expose errant practices of public companies.

Note: Bold print and italics added by me.

So what am I self-promoting? A "crook" that gives free speaking engagements paid for by me on my own dime?

I have written about Overstock.com's possible violations of securities laws both before and after my fraud presentation at his white collar crime conference. Nowhere in the blog item that Mark Shurtleff refers to in his letter or anywhere else on my blog or whitecollarfraud.com web site have I used his white collar crime conference for "self promotion as a person who can detect and expose errant practices of public companies" despite the fact that I made no such agreement in any way with his office concerning this issue.

On August 22, 2007, after the I accepted the Utah Attorney General's Office's invitation to speak at its 14th Annual White Collar Crime Conference, at the bottom of a blog item entitled, "Did Overstock.com CEO Patrick Byrne cook the company's numbers and mislead investors? (Part 2)," I added the following note:

Newly scheduled fraud presentations:

On October 31, 2007, the Utah Attorney General's Office (Financial Crimes Unit) in Salt Lake City, Utah.

The Utah Attorney General's Office was well aware of that blog item. They sent me no blog comments, emails, or in any way communicated to me that they objected to that information in a blog post. They let me speak at their white collar crime conference about two months later.

On November 15, 2007, a day after I learned about Overstock.com's press release and Utah Attorney General Mark Shurtleff's letter, I contacted certain individuals at his office by phone who were directly involved in my fraud presentation about his allegations. Those individuals can confirm that Mark Shurtleff's allegations about me are completely baseless, inaccurate, false, and misleading. Those individuals can confirm that Mark Shurtleff's letter made certain false allegations about me and they categorically contradict every single claim he has made in his letter.

Those individuals from his office have already apologized to me for the actions of their Attorney General, have told me that they "disagree" with him and are "embarrassed" by his actions. They confirm that I did nothing wrong, fully lived up to their expectations, violated no agreements and understandings, and were very pleased with my fraud presentation.

I told those persons from his office that if Utah Attorney General Mark Shurtleff posted a categorical retraction of his letter and gave me a public apology, that I would stand by him and defend him for retracting his errors. One high ranking individual had offered to have the Utah Attorney General's office and not specifically Attorney General Mark Shurtleff issue a written apology and not a categorical retraction. However, a day later on November 16, 2007, he withdrew that offer and said I should just accept his verbal apology and the verbal apologies of certain other persons from his office.

Rest assured that I possess plenty of detailed and irrefutable documentation to back up my representations that Utah Attorney General Mark Shurtleff made false and misleading claims in his letter from certain knowledgeable individuals in his office. Those individuals can confirm that I broke no promises made to the Utah Attorney General's office and violated no agreements or understandings made with that office. I have already provided detailed documentation to the Securities and Exchange Commission which is investigating possible securities law violations by Overstock.com and Patrick Byrne, an admitted target of their probe and a campaign contributor to Utah Attorney General Mark Shurtleff.

I now publicly ask Utah Attorney General Mark Shurtleff to categorically retract his letter concerning me and issue a full public apology to me for his ill advised actions. Mark Shurtleff should take full responsibility for his actions, rather than shift the burden of accountability to his staff for his blunders. Utah Attorney General Mark Shurtleff's staff should be free from any reprisals for disagreeing with his actions concerning me, confirming to me information contrary to his allegations, and their apologies to me.

After his letter was published in Overstock.com's press release, I had sent Mark Shurteff an email and have made several requests to his staff asking that he contact me regarding his concerns. He has deliberately avoided email or phone contact with me. So far, Utah Attorney General Mark Shurtleff arrogantly and stubbornly refuses to issue a categorical retraction and fully apologize to me, despite the facts and irrefutable evidence.

Overstock.com's issuance of press release containing false and misleading information based on Utah Attorney General Mark Shurtleff's letter creates a serious disclosure issue for a company whose financial disclosures are now being seriously investigated by the SEC. I have asked the SEC to refer this matter to other appropriate law enforcement authorities, as well.

A legitimate question can be raised as to whether the Chief Legal Officer of the state of Utah by publicly taking the side of Overstock.com after taking their campaign contributions has become a facilitator of the company and has involved himself in the commission of a securities fraud.

Like Utah Attorney General Mark Shurtleff once claimed:

My campaign is primarily funded by those who care about the same values and principles I do.

Note: Bold print and italics added by me.

I guess that Utah Attorney General Mark Shurtleff found a perfect match and jumped into the sack with Overstock.com and Patrick Byrne. Mark Shurtleff is an unprincipled state attorney general who has demonstrated himself as a corrupt public official by pandering to the campaign contributions of Overstock.com and its CEO, Patrick Byrne, who are both under scrutiny by the Securities and Exchange Commission for possible securities law violations.

Utah Attorney General Mark Shurtleff's claim that I refused to post his letter as a comment in my blog

Specifically, Utah Attorney General Mark Shurtleff made the following allegation:

As Utah Attorney General, I am writing this letter to rebut a blog Sam Antar posted on his website on November 1, 2007. I tried to post this letter as a comment on his blog but Mr. Antar apparently refused to post it.

Note: Bold print and italics added by me.

Mark Shurtleff's letter was written on November 8, 2007 (it's dated November 8, 2008) and Overstock.com released his letter through a press release issued on November 14, 2007. I did not receive any request from Mark Shurtleff or his office to post anything on my blog until a day after Overstock.com's press release, on November 15, 2007 at 11:40 AM ET. I promptly posted his letter in my blog later that afternoon at 2:45 PM after finishing a fraud presentation and arriving at my office.

A certain person from the Utah Attorney General's office had left the following message on my mobile phone voicemail on November 13, 2007 at 4:36 PM ET five days after Utah Attorney General Mark Shurtleff's letter to Overstock.com CEO Patrick Byrne and one day before Overstock.com's press release. In other words, only after Mark Shurtleff had already released his letter to Overstock.com for eventual dissemination in a press release did anyone from his office attempt to contact me.

I retrieved that message hours after Overstock.com's press release, a day later, on November 14, 2007. That person said:

We'd probably give you a quick call and say thanks again for coming out to our conference. We sure do appreciate it. We know our boss has probably not been as appreciative but....sure are. If you get a chance give me a call at 801 XXX-XXXX. Thank you. Goodbye.

Note: Bold print and italics added by me. Names were excluded in "but...sure are."

However, nothing in that message indicated that I had violated any understandings or agreements with the Utah Attorney General's office, nor did that person warn me about Mark Shurtleff's letter or address any specific urgent concerns. To the contrary, the voicemail expressed their appreciation for my visit despite Shurtleff's relative lack of appreciation. Other than the message referred to above that I received five days after Mark Shurtleff's letter to Patrick Byrne, no one from the Utah Attorney General's office attempted to either email, post mail, or telephone me other than send me positive responses to my fraud presentation.

The Utah Attorney General's office already had my email address and several phone numbers if they seriously wanted to reach me. The concept of a state Attorney General attempting to reach me via a comment on my blog for such a serious matter is ridiculous considering that his staff had my home phone number, office phone number, cell phone number, and my email address. Utah Attorney General Mark Shurtleff could have just picked up the phone before the letter was issued and called me saying, "Sam, we have a serious disagreement...." Instead, he personally personally pandered to the whims of a campaign contributor Overstock.com and its CEO, Patrick Byrne, both of whom are under investigation by the Securities and Exchange Commission.

That same individual, whom I contacted on November 15, the day after Overstock.com's press release had said:

What you did was exactly what you promised to do for exactly the price you promised to do it at with no expense on our side and total expense on your side.

Note: Bold print and italics added by me.

Did the Utah Attorney General's office play a game a catch up to cover their tracks after releasing its letter to Patrick Byrne on November 8, 2007 and Overstock.com's press release on November 14, 2007?

The blog comment that I received from Mark Shurtleff arrived on November 15, 2007 about 7 days after he wrote his letter and a day after Overstock.com released that letter. The phone message I received from an individual within the Utah Attorney General's Office was sent to me 5 days after Mark Shurtleff wrote his letter a day before Overstock.com's press release. In any case, certain individuals have confirmed to me and I have detailed irrefutable records to back up my representations that I did not violate any agreements, understandings, or promises made to Utah Attorney General Michael Shurtleff's office regardless of Shurtleff's claims to the contrary.

Utah Attorney General Mark Shurtleff's claim that I used his invitation to "bookend" and "inappropriately...attack" Overstock.com in my blog

Utah Attorney General Mark Shurtleff alleges:

Mr. Antar was invited to speak at our 14th Annual White Collar Crime Conference, and to express my concern and dismay at the way Mr. Antar used that invitation to "bookend," and inappropriately attempt to legitimize, his attack on a publicly traded company headquartered in Utah.

Note: Bold print and italics added by me.

In my blog post November 1, 2007 entitled, "Overstock.com CEO Patrick Byrne Continues to Dodge Questions about SEC Probe and Faces Counterclaims by Rocker and Gradient," referred to in Utah Attorney General Mark Shurtleff's letter, I wrote:

On Wednesday, October 31, 2007, I visited Salt Lake City Utah at the invitation of Utah Attorney General Mark Shurtleff as part of their 14th Annual White Collar Crime Conference. My presentation started at 9:00 AM and was supposed to finish by 11:15 AM. I invited the persons attending the fraud conference to ask me any question. I answered every single question posed to me truthfully, unambiguously, and without deflection. As a result, my fraud presentation concluded about one-half hour later than originally planned.

There were still more questions. So I stayed around at the conference until 1:30 PM and did not leave the conference until every person was satisfied that their questions were answered by me. Afterwards, I visited the Securities and Exchange Commission office in Utah and met with them about issues related to Overstock.com and Patrick Byrne. I waived my right to counsel as we discussed issues relating to Overstock.com, Patrick Byrne, and other persons working in collusion with him.

Note: Bold print and italics added by me.

In the closing paragraph of my blog item, I wrote:

Special thanks to Utah Attorney General Mark Shurtleff for inviting me to make a fraud presentation at his office's 14th Annual Conference on White Collar Crime. In the last eight years, I have traveled across our great country and made over 200 fraud presentations on behalf of over 70 hosting organizations, including dozens of government entities, universities, professional groups, and companies free of charge and without any cost reimbursement.

Note: Bold print and italics added by me.

I neither expressed nor implied that my fraud presentation at the Utah Attorney General's 14th White Collar Crime Conference had anything to do with Overstock.com in that blog item. I was in Salt Lake City Utah to give my fraud presentation at his white collar crime conference and "afterwards" I visited with the Securities and Exchange Commission to provide certain information about Overstock.com. In fact, the Utah Attorney General's Office was well aware of my plans that day and they permitted me to invite certain persons from the SEC, who I would meet up with later at their offices, to attend their white collar crime conference. At the end of my blog post, I gave, "Special thanks to Utah Attorney General Mark Shurtleff for inviting me to make a fraud presentation at his office's 14th Annual Conference on White Collar Crime."

What "bookend" is Utah Attorney General Mark Shurtleff referring too? None exists except in Shurtleff's imagination. In telephone conversations with certain persons from the Utah Attorney General's office, I was told that they had no issue with my blog item. In other words, Mark Shurtleff is wrong.

Utah Attorney General Mark Shurtleff allegation that I violated a promise to his office

Utah Attorney General Mark Shurtleff alleges:

I was warned that Mr. Antar might use this speaking engagement to suggest that my office or I personally, endorse or support his accusations against Overstock.com or some other public company. Based on that warning, officials in my office secured a promise from Mr. Antar that he would not use this invitation for that purpose. So much for the promises of a convicted felon! The day after speaking in Utah, he submitted the forgoing (sic) post, opening and closing his latest round of Overstock attacks with references to me, my office, and his presentation at our crime conference.

Note: Bold print and italics added by me.

A certain person at the Utah Attorney General's office told me that Overstock.com was upset over Utah Attorney General's office invitation to me to make a fraud presentation at their white collar crime conference. The only agreement that I made with Mark Shurtleff's office was to not discuss Overstock.com during my fraud presentation, unless asked by someone in the audience.

I fully complied with my agreement to the Utah Attorney General's office. Nowhere in my blog or whitcollarfraud.com web site did I write anything to suggest that Utah Attorney General Mark Shurtleff personally endorsed anything I had written about Overstock.com or any other public company.

While Utah Attorney General Mark Shurtleff writes, "So much for the promises of a convicted felon," none of the promises I made with his office were violated. It is Mark Shurtleff who has written false and misleading accusations on behalf of a campaign contributor, despite information from his own staff that refute his allegations. It is Utah Attorney General Mark Shurtleff that cannot be trusted to tell the truth or own up to his errors in judgment.

Utah Attorney General Mark Shurtleff's allegation that I claim that he endorses my views about the current practices of any public company or supports any so-called "controversial statements" I have made

In his letter, Utah Attorney General Mark Shurtleff claims:

Let me be perfectly clear: Our invitation to Mr. Antar was in no way an endorsement of his views on the current practices of any public company. It was in no way a statement of support or an endorsement of Mr. Antar's controversial statements respecting any particular public company of any sort. Our invitation, and his presentation at our conference, should not to be taken as any comment on Mr. Antar's self-promotion as a person who can detect and expose errant practices of public companies.

Note: Bold print and italics added by me.

Where did I say in my blog or whitecollarfraud.com web site that Utah Attorney General Mark Shurtleff endorses my "views on the current practices of any public company" as alleged by Shurtleff? Where have I written on my blog or whitecollarfraud.com web site any "statement of support" or any "endorsement" as alleged by Shurtleff? The answer is nowhere. I invite Utah Attorney General Mark Shurtleff to prove me to the contrary.

During my taped presentation, I never discussed Overstock.com nor did any person in the audience ask me about Overstock.com.

The Attorney General's Office and other attendees actually praised my fraud presentation

Andrew Adams from KSL News Radio interviewed Chief Deputy Attorney General Torgensen and I after my presentation:

There was a "rock star" in a room full of "good guys" downtown today. It was a bad guy at the "White Collar Crimes Conference."

The women auditors were almost in a swoon.

Sam Antar just explained how his family had skimmed $20 million off the top, and then made another $75 million from pumping and dumping Crazy Eddie, Inc. stock in the 1980s.

Chief Deputy Attorney General Kirk Torgenson was a sponge. "When you hear it from somebody who did it, it gives you insights into how they think," Torgersen (sic) said.

"I'm no rock star, I'm a crook," Antar said. "White collar crime is just as brutal as violent crime."

That was Antar's message. He says the way to crack down is with better auditing and policing. He also says his CPA license was just revoked; that should have happened 15 years ago.

Note: Bold print and italics added by me.

Link to audio clip.

Two days after my fraud presentation and one day after my blog post discussing that presentation, a certain individual from the Utah Attorney General's office emailed me, writing:

Thank you for giving such a dynamic and thought-provoking talk. I've received nothing but positive feedback. I hope you enjoyed your brief stay in Salt Lake. Also feel free to contact me if there's anything I can do for you in the future.

Note: Bold print and italics added by me.

Other individuals from the Utah Attorney General's office have told me that they received only praise from the persons attending my fraud presentation.

Certain persons from Utah Attorney General Mark Shurtleff office contradicted his allegations and fully agreed that I did what I was supposed to do at the fraud presentation and did not violate any understandings or agreements with the Utah Attorney General's office. They had read my blog item that Mark Shurtleff had complained about in his letter, found nothing wrong with it, and disagreed with his judgment and actions.

A message to Utah Attorney General Mark Shurtleff

In your letter you wrote:

In light of Mr. Antar's background as a convicted white collar criminal, we believe that the public should carefully scrutinize and objectively examine any public statements Mr. Antar makes.

Note: Bold print and italics added by me.

If you had actually attended and listened to my fraud presentation at your white collar crime conference or read the any newspaper coverage about my other fraud presentations, I make just about the same representation to every audience. I teach them, "Do not trust, just verify, verify, and verify." I explain to my audiences that the word "trust" is a professional hazard for law enforcement, antifraud professionals, and the accounting profession. In addition, I explain to my audience that no person is beyond reproach, even an Attorney General as you have aptly demonstrated by your behavior. I will send you a tape of my fraud presentation at your 14th white collar crime conference. You may learn something about crooked CEOs, too, instead of kowtowing to them after you receive campaign contributions from them or their companies.

In your letter, you claim:

Neither I, nor the Office of the Utah Attorney General, is reliant on Sam Antar for training or advice on the current practices of public companies. This office is not underwriting or endorsing in anyway Mr. Antar or his views. Nothing could be further from the truth.

Note: Bold print and italics added by me.

It was your office that asked me to take time out of my schedule to come to you for "training or advice on the current practices of public companies." I did not say that you or your office was "underwriting or endorsing" my views. However, it is your office that invited me to express my views on white collar crime and your office praised the presentation of my views at your white collar crime conference. Your office and conference attendees have given me nothing but positive feedback about my presentation.

Lastly, you state in your letter:

"I admonish Mr. Antar to remove from his website any reference (including the forgoing (sic) blog) that might suggestion such a conclusion; and to be careful not to suggest such a connection or conclusion in any of his public statements."

Note: Bold print and italics added by me.

Well than Mr. Shurtleff, at least you have raised public awareness of cronyism and possible corruption by high public officials, such as the chief legal officer of an entire state.

The word and wishes of an unprincipled state attorney general who has demonstrated himself as a corrupt public official by pandering to the campaign contributions of a company and CEO under scrutiny by the SEC gets no respect or cooperation from this convicted felon. You are an Attorney General, who does not care about possible crimes by companies who happen to be campaign contributors, in your own backyard.

However, I invite you to provide me via email with specific detailed reasons of what I should edit or remove from my blog post and why. I strongly advise you that before you respond to me, Mr. Shurtleff, you and your office should get your stories straight. You have the right to remain silent and a constitutional right against self-incrimination.

Otherwise, your charade has wasted enough of my time.

PS: A state Attorney General should be careful to proof read official documents before signing and releasing them. Your date was off an entire year. Your letter was dated November 8, 2008, not 2007. You had one incomplete sentence, "Mr. Antar was invited...." You used the wrong spelling for "forgoing." It should be "foregoing." I guess that's the best quality a campaign contributor can expect from you for $10,000.

Well, typos happen to the best of us.

Written by:

Sam E. Antar (former Crazy Eddie CFO & convicted felon)

Update (11/29/07): Please read my blog post entitled,"Utah Attorney General Mark Shurtleff Caught Lying on Behalf of Overstock.com and Patrick Byrne," and listen to the taped conversation between Deputy Attorney General Richard Hamp and I.

Update (12/13/07): Please read my blog post entitled, "Open Letter to Utah Attorney General Mark Shurtleff Re: Your lies on behalf of campaign contributor Overstock.com."

Update (08/18/08): Please read my blog post entitled, "Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne Pays Utah Attorney General Mark Shurtleff to Defame a Blogger." Just a few days prior to Utah Attorney General Mark Shurtleff's defamation of me in his "open letter" and Overstock.com's subsequent press release, Shurtleff received a $5,000 so-called campaign contribution from Overstock.com. In addition, new details of phone conversations with Deputy Attorney General Richard Hamp and Chief Deputy Attorney General Kirk Torgensen verify that Utah Attorney General Mark Shurtleff lied on behalf of Overstock.com to defame me.

Other Blogs Covering this Issue:

The FRAUDfiles blog by Tracy Coenen (date order):

11/15/07: Yesterday’s press release by Overstock.com on Sam Antar and the Utah Attorney General’s office

11/15/07: My letter requesting an apology to Sam Antar from Utah AG Mark Shurtleff

11/15/07: Update on Mark Shurtleff’s comments from Sam Antar’s blog

11/16/07: Utah Attorney General Mark Shurtleff: No apology for Sam Antar!

Other Blogs:

11/20/07: The World According to Me - AG Shurtleff Defames Critic of Patrick Byrne by Bob

11/21/07: Gary Weiss - Utah Attorney General Kowtows to Overstock.com by Gary Weiss