Skip to main content

New Accounting Errors Make’s Financial Reports Not Reliable While SEC Regulation G Violations Continue

The saga of (NASDAQ: OSTK) led by CEO Patrick Byrne is a clear example of why so many investors have lost faith in the integrity of financial information disseminated by public companies. is a perennial money losing company selling investors hope for the future as its unprincipled management team continually disseminates an almost endless stream of false, misleading, deceptive, and erroneous disclosures.’s latest Q3 2008 earnings release disclosed new accounting errors that render its previous financial reports as not reliable. The company disclosed that it is restating all financial reports from 2003 to 2008 due to material “errors related to the accounting of customer refunds and credits.” Therefore, reported that all financial reports dating back to 2003 “should no longer be relied upon.”

A History of Accounting Errors

Earlier this year, the Securities and Exchange Commission Division of Corporation Finance uncovered revenue accounting errors by dating back to the company's inception. In's responses to SEC inquiries, the company claimed that its revenue accounting error was not material. The company was clearly attempting to avoid a restatement of prior affected financial reports arising from intentional revenue accounting errors uncovered by the SEC. Instead, the company wanted to report its revenue accounting error as a one-time adjustment cumulative adjustment in its Q4 2007 financial report, apparently to hide the impact of such errors on previous affected individual financial reports.

I carefully examined's materiality analysis that was submitted to the SEC for its revenue accounting errors and found the company's analysis to be seriously flawed and misleading. At that time, I called on to restate its financial reports since my analysis found that the company's revenue accounting errors were material, contrary to's claims that they were not material.

Now, with newly disclosed accounting errors relating to customer refunds and credits, restated all financial statements back to 2003. In addition, reversed the previous one-time cumulative adjustment in Q4 2007 to correct its revenue recognition errors. By restating its financial statements, recorded such revenue accounting error corrections in their appropriate periods, as I called for in my blog.

Several years ago, restated financial reports dating from 2002 to 2005 due to inventory accounting errors. Because of's inventory build up at that time, the timing of's inventory accounting error disclosure enabled Patrick Byrne to boast that the company's numbers were too conservative.'s restatement of financial reports wipes out previous positive adjustments to income from correcting its inventory accounting error.

After's latest string of revenue accounting errors and customer refund and credit accounting errors, the sum total of all accounting errors have added $10.3 million to cumulative losses of $255 million reported since the company's inception. In addition, the latest accounting error completely wiped out shareholder's equity to a negative $3.681 million. The company left open the possibility of additional adjustments to correct its accounting errors. What a mess!

So much for Patrick Byrne's phony claims that:

I wish to set a gold standard in communicating with candor your firm's results. In our public SEC filings we chose principles at the conservative edge of GAAP….

Note: Bold print and italics added by me.

Tracy Coenen, an acclaimed forensic accountant and author observed in her blog:

Since 2000, has never had a profitable year. The only two quarters which ended up in the black [Q2 2002 and Q4 2004] are suspect

She added:

Some of the financial statements that are being restated have already been restated by once, making the new financial statements “re-restated.” Leave to Ringmaster Byrne and his three ring circus.

Note: Bold print and italics added by me. Bracketed information added by me for clarity.

It is now clear that’s financial reports have never conformed to GAAP and are inaccurate despite previous assurances by Patrick Byrne that “I’m all about GAAP” and Sarbanes-Oxley certifications by Byrne and other senior officers attesting that accuracy of the company’s financial reports.

It should come as no surprise that's financial reporting cannot be relied on with a habitually lying CEO like Patrick Byrne. In an October 2007 blog post, I provided details dating back to 2000, how Patrick Byrne used deceptively used non-GAAP revenues to hype's top-line performance, while at the same time he claimed that was GAAP profitable, even though the company was not profitable at all.

Audit Committee, Auditors, and Management Asleep at the Wheel

It is also apparent that’s Audit Committee, PriceWaterhouseCoopers, its external auditors, and management are asleep at the wheel. On May 13, 2008, during the annual meeting of shareholders, Audit Committee Chairperson Allison H. Abraham praised the work of PricewaterhouseCoopers LLP:

The Audit Committee has had substantial opportunity to evaluate the work of PricewaterhouseCoopers and has found it to be consistent and of high quality.

Note: Bold print and italics added by me.

Allison H. Abraham's evaluation of PricewaterhouseCoopers LLP is utter nonsense. The PricewaterhouseCoopers audit team has struck out as it missed three material accounting errors spanning at least 8 years.

We have to wonder if CFO David Chidester is asleep at the wheel, too. blamed its latest accounting errors on a 2005 major system upgrade and disclosed, “After the implementation, in the instance of some customer refunds, this reduction wasn’t happening, and we didn’t catch it.” The company claims that it took three years after the major system upgrade to catch the latest accounting error. If that is really the case, I suggest that David Chidester purchase a copy of “Accounting for Dummies” and study it well.

Insider Sales Ahead of Latest News of New Accounting Errors

Meanwhile, on May 22, 2008, David Chidester sold 2,766 shares of common stock at an average price of about $27.80 per share and pocketed about $77,000 in gross proceeds. After's latest accounting error was announced on Friday, the stock closed at $9.03 per share. Recent stock sales this year by CFO David Chidester may be subject to the clawback provisions under Sarbanes-Oxley Section 304.

Current President Jonathan Johnson may have a 10b-5 issue after lying to He claimed that was using GAAP numbers in Q1 2007 when the company actually used non-GAAP numbers due to its revenue accounting error. In a blog post, I detailed how's Q1 2008 earnings release failed to disclose that the company compared Q1 2008 revenues and other related items reported on a GAAP basis to Q1 2007 revenues and other related items that were reported on a non-GAAP basis.

At the time it was clear from's SEC filings that Q1 2007's numbers were not reported on a GAAP basis. made a one-time cumulative adjustment in Q4 2007 to correct its revenue accounting errors, rather than restate previous financial reports. Therefore, Q1 2007's numbers could not have been reported in compliance with GAAP.

According to a article by Betsy Schiffman:

In its earnings release, failed to disclose that it compared first-quarter 2008 revenues reported on a GAAP basis to first-quarter 2007 revenues that were reported on a non-GAAP basis," Antar wrote on his White Collar Fraud blog.

For those who don't speak accountantese, "non-GAAP" basically refers to non-standard accounting practices, and the difference between GAAP and non-GAAP numbers is often substantial.

"Sam is just wrong," says Jonathan Johnson, senior vice president of legal at Overstock. "They're both GAAP numbers . . . I can't read his blog because it's so full of lies."

Note: Bold print and italics added by me.

The liar is Jonathan Johnson, since's Q1 2007 numbers, as detailed above, were not reported in compliance with GAAP due to the company's revenue accounting errors and its failure to restate previous financial reports.

What was Jonathan Johnson thinking when he outright lied to reporter Betsy Schiffman? A couple of days later, Jonathan Johnson unloaded 55,922 shares of common shares at an average price per share of $17.11 per share and pocketed gross proceeds totaling about $957,000 (Source: Form 4 here and here). That's almost double Friday's closing price per share of $9.03.

Worst yet, with's latest disclosure of customer refund and credit accounting errors, now both Q1 2008 and Q1 2007 reports used non-GAAP numbers, rather than just Q1 2007's report.

Posting and emailing questions to Patrick Byrne a day before the earnings call

While cannot seem to report GAAP numbers, the company also has trouble reporting compliant non-GAAP numbers, such as EBITDA, too. Since November 2007, this blog (all related posts here) has detailed how’s EBITDA disclosures are materially overstated due to the company’s non-compliance with SEC Regulation G governing such disclosures.

A day before the Q3 2008 earnings call, I posted a series of questions on this blog about’s violations of SEC Regulation G governing its EBITDA disclosures and other false and misleading disclosures by management. During the earnings call, CEO Patrick Byrne, President Jonathan Johnson, and CFO David Chidester denied that’s reported EBITDA violated Regulation G with new false statements and distortions.

Their false claims about’s Regulation G compliance went unchallenged by spineless Wall Street analysts attending the earnings call. In addition, the cowards at did not permit me to ask any questions during the call despite my requests.’s Violation of Securities and Exchange Commission Regulation G governing Non-GAAP Disclosures Such as EBITDA

Since Q2 2007, has embraced EBITDA as an important measure of the company’s performance, despite previous statements by Patrick Byrne critical of companies that use EBITDA. More importantly,’s EBITDA disclosures are materially overstated due to the company’s non-compliance with SEC Regulation G governing such disclosures. reconciles its reported EBITDA to operating loss, rather than net loss and improperly eliminates stock-based compensation costs from its EBITDA calculation. In previous quarters,’s reported EBITDA has been materially overstated by the amount of any losses from discontinued operations (not part of operating losses) and stock-based compensation costs.

During the earnings call, Patrick Byrne and Jonathan Johnson responded to me about’s EBITDA disclosures with outright untruths and I was not permitted to challenge their false statements:

Patrick Byrne:

The claim that EBITDA is not compliant with SEC definition, nonsense. Our EBITDA reconciles to GAAP. The SEC says you have to reconcile EBITDA to GAAP. We follow, I believe, the general industry practice and the A in EBITDA, amortization of stock-based compensation, our EBITDA excludes it. Moreover we reconcile everything to GAAP. Sam Antar the Crook has pointed out as a couple of people have received comment letters. They were people who had not reconciled to GAAP. In any case, we’ve gone through this over and over with our lawyers. They’re saying you’re doing this right. Jonathan, do you want to add anything?

Jonathan Johnson:

No. Our EBITDA reconciles to GAAP. End of story.

Note: Bold print and italics added by me.

Sorry Jonathan, it is not the end of the story. Now here are the facts.

Patrick Byrne and Jonathan Johnson want you to believe just because the company’s reported EBITDA calculation “reconciles to GAAP,” it is not in violation of SEC Regulation G. That assertion is simply untrue. The SEC Regulation G requires that non-GAAP measures such as EBITDA be reconciled “the most directly comparable GAAP financial measure” and not any GAAP measure that management wants to reconcile it to.

Specifically, in the case of EBITDA, the SEC has defined the “the most directly comparable GAAP financial measure” as net income or loss and not operating income or loss, as used by

According to the SEC guidance:

EBITDA should be reconciled to net income as presented in the statement of operations under GAAP. Operating income would not be considered the most directly comparable GAAP financial measure because EBIT and EBITDA make adjustments for items that are not included in operating income.

Note: Bold print and italics added by me. cannot reconcile EBITDA to operating income or loss (a GAAP financial measure) and it must reconcile EBITDA to net income or loss (the most directly comparable GAAP financial measure).

In addition, Patrick Byrne claimed that:

Antar the Crook has pointed out as a couple of people have received comment letters they were people who had not reconciled to GAAP.

Note: Bold print and italics added by me.

Again, Patrick Byrne’s claim is untrue. According to the first SEC comment letter cited by me, CKX Inc., like improperly reconciled EBITDA to “income or loss from operations” a GAAP measure. However, both and CKX should have reconciled EBITDA to net income or loss which is “the most directly comparable GAAP financial measure” as required by SEC Regulation G.

The SEC told CKX in its comment letter:

…please revise your calculation of EBITDA such that it is computed as net income (loss) (rather than income or loss from continuing operations) before interest expense, income tax expense (benefit), depreciation and amortization. Alternatively, if you believe your current presentation of your non-GAAP measure is appropriate, but has been characterized inappropriately as EBITDA, revise your presentation….

Note: Bold print and italics added by me.

CKX responded to the SEC comment letter:

The Registrant has revised its presentation in the Summary Historical and Pro Forma Financial Data to include operating income before depreciation and amortization ("OIBDA"). All references to EBITDA have been removed. The Registrant has revised its disclosures to reconcile OIBDA to operating income which is the most directly comparable financial measure calculated and presented in accordance with GAAP.

Note: Bold print and italics added by me.

Therefore, CKX renamed its non-compliant EBITDA disclosure as “OIBDA” or “operating income before depreciation and amortization” and the company was able to reconcile OIBDA to operating income “which is the most directly comparable measure” under SEC Regulation G.

In the second SEC comment letter cited by me, CGG Veritas, like, improperly eliminated stock-based compensation expenses from its non-complaint reported EBITDA. Patrick Byrne would like investors to believe that stock-based compensation costs are properly excluded from EBITDA as an amortization expense. However, as cited the comment letter to CGG Veritas, the SEC does not agree with's claim that stock-based compensation costs are properly excludable from EBITDA.

The SEC told CGG Veritas:

The acronym EBITDA refers specifically to earning before interest, tax, depreciation and amortization. However, your measure also adjusts earnings for stock option expense. We will not object to your using such a measure as a liquidity measure but request that you rename it to avoid investor confusion.

Note: Bold print and italics added by me.

CGG Veritas replied to the SEC:

In response to the Staff’s comment, we will in future filings refer to the non-GAAP measure in question as “EBITDAS”, which we will define as “earnings before interest, tax, depreciation, amortization and share-based compensation cost

Note: Bold print and italics added by me.

Therefore, it is clear that, like CGG Veritas, cannot eliminate stock-based compensation costs from EBITDA under Regulation G.

Based on the two SEC comment letters above, I have suggested that simply re-name its non-compliant EBITDA disclosure as OIBITDAS or operating income before interest, taxes, depreciation, amortization, and stock-based compensation. However, stubbornly refuses to comply with SEC Regulation G and it materially overstates EBITDA.

Another excuse offered by Patrick Byrne during the Q3 2008 earnings call and David Chidester during the previous Q2 2008 earnings call is that is following “industry practice” by eliminating stock-based compensation costs from EBITDA. However, following the accounting practices of some other non-compliant companies who have not faced SEC action is no excuse for violating SEC Regulation G.

According to SEC Staff Accounting Bulletin No.99:

Some have argued to the staff that registrants should be permitted to follow an industry accounting practice even though that practice is inconsistent with authoritative accounting literature… The staff disagrees with this argument. Authoritative literature takes precedence over industry practice that is contrary to GAAP.

Note: Bold print and italics added by me.

Therefore, Patrick Byrne and David Chidester’s “industry practice” excuse is dead wrong. Accounting practice does not take precedence over authoritative literature such as SEC Regulation G.

Another issue that was raised by me, but ignored by management, is the company’s inconsistent EBITDA disclosures. In my questions to Patrick Byrne, I wrote:

In certain accounting periods, has eliminated part of its restructuring costs from EBITDA while in other accounting periods such restructuring costs are included in its EBITDA calculations. For example,’s Q2 2007 10-Q and Q3 2007 10-Q does not eliminate restructuring charges from both is reported quarterly and year-to-date reported EBITDA. I note that during fiscal year 2007, all of restructuring charges totaling $12.283 million occurred in Q1 and Q2 2007 and no other quarters. In contrast, in’s fiscal year 2007 10-K , the company's year-to-date EBITDA eliminates $2.169 million of the $12.283 restructuring charges that were included in previously reported year-to-date EBITDA calculations in Q2 2007 and Q3 2007.

Patrick Byrne simply could not find an available lie to respond to my question, “Why did use inconsistent calculations for computing its reported EBITDA?”’s recent embrace of EBITDA as a crucial financial measure despite Patrick Byrne’s previous criticisms of EBITDA

In my previous blog post, I cited three statements by Patrick Byrne that were critical of EBITDA and asked in general, in light of such statements why is using EBITDA now?

On April 23, 2004, Patrick Byrne appeared on the Kudlow and Cramer show on CNBC and commented about EBITDA:

Well, first of all, I’m all about GAAP. I have been so critical of the companies that do–I don’t believe in one-time charges; I don’t believe in EBITDA. If somebody talks EBITDA, put your hand on your wallet; they’re a crook.

Note: Bold print and italics added by me.

In January 2006, Patrick Byrne made the following comments about EBITDA to Tom Mullaney from Business Week in an email:

…I think “EBITDA” is the stupidest thing I ever heard emanate from Wall Street (no small feat), I … don’t begin to know how to answer. I suppose I could go and recast all my numbers into EBITDA (or for that matter, “pro forma”) but I think I’ll do something more valuable with my time, like alphabetize my CD’s by, “Name of drummer.”

Note: Bold print and italics added by me.

In March 2006, Patrick Byrne told Greg Sandoval from c/net

[Amazon] made up a phony accounting standard--pro forma….

Later Byrne added:

When it reached EBITDA (earnings before interest, tax, depreciation and amortization) breakeven, Wall Street wanted to declare it a national holiday. I've never used pro forma in my life.

Note: Bold print and italics added. Bracketed information added by me for clarity.

In effect, Patrick Byrne’s previous statements criticizing EBITDA and saying, “If somebody talks EBITDA, put your hand on your wallet; they’re a crook” defines his recent actions touting EBITDA as crooked. He has called EBITDA "the stupidest thing I ever heard emanate from Wall Street (no small feat)" and a "phony accounting standard--pro forma…." Now he uses a non-compliant EBITDA, as he pleases, to hype's financial performance.

During the Q3 2008 earnings call, Patrick Byrne responded:

Sam Antar the Crook, as I like to call him and he likes to identify himself, I think he has to as a felon. Sam Antar the Crook has sent us pages and pages of public questions. I'm going to boil it down. He says that in the past I've said that EBITDA is garbage and anyone who uses it is crooks and now we use EBITDA.

Well, that's true about.

So far, so good. Now, here is where the doubletalk begins. A deeply disturbed Patrick Byrne went on his long winded rant:

In the past, I've also said that the reason I don't like EBITDA as a measure is, (a) intellectually because you don't end up counting the spend that you spend on capital equipment either when you spend it or when you depreciate it.

Well that's not right. And secondly, what I really object to is valuing businesses off EBITDA. That's what Wall Street does and I just object to that because eventually you've got to think of the expense of that item either as you spend it or as you depreciate it.

There are two times, as I've said a dozen times, I'm sure or more, that EBITDA is interesting. One is when you're in a low cash situation, it gets very interesting. Also just when you're in a situation of not having to do much CapEx, and our CapEx dropped significantly below our actual GAAP depreciation.

We are like the proverbial boa constrictor digesting a baby hippo and we ate the baby hippo about three year goes ago actually right now and it's moved its way through the boa constrictor.

In others words, Patrick Byrne is in effect saying that, “I don't like EBITDA as a measure” but I will use EBITDA as it pleases me. However, the bedrock of our accounting system is the consistent application and disclosures of financial measures like EBITDA. A financial measure, such as EBITDA, is not meant to be turned on or off like a faucet as management pleases. Investors require comparable financial information and not measures that pop in and out of financial reports as they please management’s agenda.

Patrick Byrne and's justification for using EBITDA are contradicted by the company's Q3 2008 financial perfomance

In any case, Patrick Byrne shot himself in the foot when he tried to justify using EBITDA, despite his previous comments criticizing it, by claiming that "it gets very interesting.... when you're in a situation of not having to do much CapEx, and our CapEx dropped significantly below our actual GAAP depreciation." In addition,'s Q3 2008 financial report claims:

We believe that, because our current capital expenditures are lower than our depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors because it approximates cash used or cash generated by the operations of the business.

Note: Bold print and italics added by me.

Those claims are contradicted by's financial performance. Actually, during Q3 2008, capital expenditures were much higher than the previous year's comparable quarter and capital expenditures were higher than GAAP depreciation, in contrast to Byrne's comments and's disclosures.

During Q3 2008, expenditures for property and equipment ("CapEx") totaled $8.8 million compared to $316K during Q3 2007 or about 27 times higher, in contrast to Byrne's comment claiming that EBITDA is "interesting" when capital expenditures are dropping.

In addition, during Q3 2008,'s capital expenditures of $8.8 million exceeded depreciation and amortization expenses of $5.6 million by $3.2 million or 57%. This disclosure contradicts both Byrne's and the company's disclosure that using EBITDA is justified when capital expenditures are lower than depreciation expenses.

Not a single Wall Street analyst attending the earnings call, challenged Byrne's doubletalk.

Perhaps the most amusing comment during the earnings call was echoed by both Patrick Byrne and Jonathan Johnson. Both Byrne and Johnson said, “Our EBITDA reconciles to GAAP.” However, as is evident by’s history of financial misstatements, the company’s previous financial reports never complied with GAAP!

There were other amusing moments, too. Former company President Jason C. Lindsey made a futile attempt at addressing his previous misstatements about junk inventory levels that were pointed out by this blog. However, you will need to wait for part 2 or 3 of this series of blog posts for further details.

To be continued....

Written by,

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

Disclosure: Not long or short


Devid said…
This is a beautiful story which is nice described by you.

Thank You
Debt Consolidation
Devid said…
This is a beautiful story which is nice described by you.

Thank You
Debt Consolidation

Popular Posts

Did a Clever SEC Bait Goldman Sachs into Compounding Its Legal Problems With the "Kiss of Death" Message?

Updated: At 3:48 AM ET 04/20/2010 on bottom

The Kiss of Death

In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint. While the SEC as a practice does inform target companies and individuals of an impending enforcement action, it does not always tell them exactly when such an action will be filed.

Apparently, the SEC filed its lawsuit without giving Goldman Sachs the heads up that it was planning to file it that day. Business Insider observed that Goldman Sachs was clearly unprepared to respond to the complaint as news of the lawsuit dominated the headlines all day. Goldman issued a short denial around noon and issued an extensive denial late in the afternoon, after most people had … CEO Patrick Byrne Sleeps With a Gun

Suggested Reading: Hatchet Man Judd Bagley's Downward Spiral: Junkie, Confessed Criminal, Admitted Adulterer by Sam Antar (here), and Closing the File on a Criminal and Junkie Named Judd Bagley by Gary Weiss (here)

In numerous blog posts in the past, and in widespread media coverage, evidence has accumulated for years that CEO (NASDAQ: OSTK) Patrick Byrne has shown signs of being mentally unbalanced and paranoid.

Byrne has blamed his company's financial woes on an unnamed "Sith Lord." He hired paid goons to stalk his real and imagined adversaries and to write lengthy conspiracy theories on the Internet. Byrne has close ties with Bo Gritz. The Anti-Defamation League lists Bo Gritz as a far-right extremist with “extensive connections to both white supremacists and anti-government groups and leaders.”

Patrick Byrne's infamous temper tantrums when he doesn’t get want he wants are well documented too. He made obscene and misogynistic commen…

Nature's Sunshine Products, Willbros Group, Cal Dive International, and BSQUARE Violate S.E.C. Rules on Calculating EBITDA

Nature’s Sunshine Products (NASDAQ: NATR), Willbros Group (NYSE: WG), Cal Dive International (NYSE: DVR), and BSQUARE (NASDAQ: BSQR) have recently issued earnings reports which include a calculation of EBITDA (earnings before interest, taxes, depreciation, and amortization) that apparently does not comply with Securities and Exchange Commission interpretations for Regulation G governing such non-GAAP financial measures. In each case, their erroneous EBITDA calculations have enabled them to significantly distort their financial performance by erroneously reporting a positive EBITDA, when they should have reported a negative EBITDA in the latest quarter.

How EBITDA is supposed to be calculated under Regulation G

According to the S.E.C. Compliance & Disclosure Interpretations, EBITDA is defined under Regulation G as net income (not operating income) before net interest, taxes, depreciation, and amortization. See below:

Question 103.01Question: Exchange Act Release No. 47226 describes E…

InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme

In this blog post, I will provide evidence of what I believe is a stock market manipulation scheme involving InterOil (NYSE: IOC), John Thomas Financial, and Clarion Finanz AG. I believe that InterOil with the assistance of Clarion Finanz concealed John Thomas Financial’s involvement in helping it raise $95 million through a private placement of convertible debt securities.

Clarion Finanz acted as a buffer between InterOil and John Thomas Financial to help InterOil hide John Thomas Financial's role in raising funds. Afterwards, InterOil filed false and misleading reports with the Securities and Exchange Commission in an effort to conceal John Thomas Financial’s role in helping the company raise $95 million in convertible debt.

Carl Caserta, who in 1991 was barred by the Securities and Exchange Commission from “association with any broker, dealer, or investment advisor” played a role in helping InterOil use John Thomas Financial to obtain funds from investors. InterOil, John Thoma…

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance

Updated at bottom of article

Last week, Pomerantz Haudek Grossman & Gross LLP filed a class action lawsuit against Amedisys (NASDAQ: AMED) charging the company, its CEO William F. Borne and its CFO Dale E. Redman with securities fraud.  In the next few days, Bernstein Liebhard LLP and Finkelstein Thompson LLP filed similar class action lawsuits against the company. The lawsuits allege that Amedisys abused Medicare's reimbursement system for at-home therapy care based on a compelling analysis of company revenues in an April 27 Wall Street Journal article.

In addition, the lawsuits innovatively utilize a provision under Section 406 of the Sarbanes-Oxley Act 2002 which provides a back-door way for investors to force ethical corporate governance and sue public companies for malfeasance. That provision requires Senior Financial Officers, such as the CEO and CFO of public companies, to abide by a strict code of ethics which broadly defines corporate malfeasance and effectively makes…