Monday, March 30, 2009

To Grant Thornton, New Auditors for

To Grant Thornton (new auditors for

When Crazy Eddie was gearing up to go public, many of the top accounting firms clamored for our business. Some accounting firms passed on taking us as a client (smart move) and others continued to compete for our business (dumb move).

Unfortunately, Main Hurdman, now KPMG, won our business. That decision cost them many years of litigation and close to $50 million in damages paid to investors. At KPMG, many careers were ruined by our crimes.

The accounting profession never seems to learn the following lesson from previous follies that happen time and time again:

Know who you are dealing with and if the potential client does not pass the smell test, pass on their business.

I wish that I can wish you luck with your new client. However, I cannot wish you luck because you apparently ignored the basic "smell test" in evaluating as a potential client.

Recently, (NASDAQ: OSTK) announced that it “dismissed” PricewaterhouseCoopers as its auditors and replaced them with your firm, as its new auditors. has been plagued with material accounting errors, restatements of financial reports, re-restatements of financial reports, and violations of SEC rules throughout its history. Worst yet,'s unprincipled management team, led by masquerading stock market reformer CEO Patrick Byrne, has continually lied to investors about the company's financial performance. All of those lying members of the management team are still working for the company, despite serial lies about the company's financial performance, as I will describe below and in a series of blog posts to come.

A history of phony financial reports and lies by management about the company's financial performance going back almost ten years

Apparently Grant Thornton, like your predecessor, PricewaterhouseCoopers, did not carefully examine false claims about's financial performance, dating back almost ten years by CEO Patrick Byrne. You would have discovered that Byrne has no problem habitually lying to the investors, the news media and the public.

As early as 2000, Patrick Byrne deceptively used non-GAAP revenues to hype's top-line performance, while at the same time claiming that was GAAP profitable, even though the company was not profitable at all (details here).

Below are some specific examples about how Patrick Byrne lied about being "profitable" while the company was never profitable

Several months before's initial public offering in March 2002, CEO Patrick Byrne was hyping his company's financial performance on the Fox News show, "Your World with Neil Cavuto."

On December 11, 2001, Brenda Buttner interviewed Patrick Byrne and he claimed:

We're profitable.

Brenda Buttner asked:

Your real honest-to-goodness profit, not pro forma?

Patrick Byrne responded:

None of that stuff.

A few months later, on March 1, 2002, CEO reiterated that his company was "profitable" in 2001 to Business 2.0 reporter Owen Thomas.

The article stated:

Last year was tough for retailers, but a banner season for bargain hunters -- and surprisingly good for e-commerce. Patrick Byrne, CEO of excess merchandise reseller, exploited all these trends to ring up a profit on sales of roughly $80 million. He'll be stalking even bigger game in the months to come.

In the interview, Owen Thomas asked:

Are you profitable?

Patrick Byrne's response:

Yes, that's real GAAP profit, not Amazon-bullshit-accounting profit.

As I will document below, Patrick Byrne blatantly lied to both Fox News and Business 2.0 about being profitable.

Just 4 days after the Business 2.0 interview, on March 5, 2002, filed a prospectus with the SEC, for its initial public offering. It was revealed that lost $8.4 million in 1999, $21.5 million in 2000, and $14.2 million in 2001 (See page 26).

In Q3 2001, the quarter before the Fox News interview, later reported it lost $3.9 million in that quarter. In Q4 2001, the same quarter that Byrne appeared on Fox News, later reported that it lost $3.0 million in that quarter. As I detailed above, Patrick Byrne told Fox News, "We're profitable." How could be "profitable" when it was not profitable, as later reported by the company?

In Q1 2002, the same quarter that Patrick Byrne told Business 2.0 that it was profitable, later reported a $9.7 million loss for that quarter. In the next quarter, the company reported a $2.5 million dollar loss (Source: S-1A page 34, dated February 12, 2003).

There was simply no rational basis for Byrne to claim that was profitable to both Fox News and Business 2.0. At the time of both interviews, never even had a profitable quarter. To date, had never reported a profitable year!

By the way, reported only $40 million in revenues in 2001, not "sales of roughly $80 million" as he reportedly told Business 2.0.

Even worse, many years later, in January 2008, the Securities and Exchange Commission discovered that did not follow Generally Accepted Accounting Principles (GAAP) from day one, despite claims by Patrick Byrne, so-called audited financial statements certified by PricewaterhouseCoopers, and Sarbanes-Oxley certifications signed by Byrne and his CFOs that were submitted to the Securities and Exchange Commission.

You have to wonder if Patrick Byrne is simply insane! He masquerades as a stock market reformer in order to build a wall of false integrity around him, like a white collar criminal, apparently to lure a gullible public to invest in his perennially money losing company and fraudulently overvalue his company's stock price. You can start reading a partial list of securities law violations by your new client and its management, here.

As a public company, raised to date over $230 million in shareholder capital and has reported accumulated losses of over $260 million, without ever reporting a profitable year. The company made up the difference borrowing money by issuing Convertible Senior Notes to gullible lenders. is now buying back that debt at discount or profit, after fessing up that it violated GAAP and other SEC rules in its financial reports for years.

I'll just call Patrick Byrne, the lying king of corporate America.

In future blog posts, I will provide more documentation detailing how Patrick Byrne and his unprincipled management team blatantly lied and misled investors, the media, the public, and government regulators for almost ten years. What makes you think that they won't lie to Grant Thornton, too?

To be continued in Part II of this series.

Sincerely yours:

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


I have no position in securities, long or short.

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