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Open Letter to the Securities and Exchange Commission Part 3: Lied About Grant Thornton and Concealed Error


To the Securities and Exchange Commission:

In my last letter, I detailed how (NASDAQ: OSTK) deliberately concealed a 2008 overpayment to a fulfillment partner that was later recovered and improperly reported as income in Q1 2009. Now Grant Thornton has written a rare public letter to agreeing with me and taking issue with its former client's representations regarding that certain fulfillment partner in last week's conference call, and filings with the SEC. See below:

In its Q1 2009 10-Q, originally disclosed that:

In the first quarter of 2009, we reduced total cost of goods sold by $1.9 million for billing recoveries from partners who were underbilled in 2008 for certain fees and charges that they were contractually obligated to pay, and a refund due of overbillings by a freight carrier for charges from the fourth quarter of 2008.

Note: Bold print and italics added by me.'s Q1 2009 10-Q report made no mention of the 2009 recovery of a 2008 overpayment to a fulfillment partner. However, in its recent 8-K report for Q3 2009, later claimed that the $1.9 million collected from underbilled fulfillment partners also included the recovery of an overpayment to a fulfillment partner in the amount of $785,000, contrary to its prior disclosure:

In late Q1 2009, we received $785,000 relating to the partner overpayment discussed in point 1 above (even though the other issue with that partner remained unresolved). Thus, we recognized $785,000 in our 2009 Q1 Form 10-Q financials, which Grant Thornton reviewed as our auditors. In addition we highlighted $1.9 million (of which the $785,000 was a part) attributable to the collected overpayment, certain partner under-billing collections, and a freight carrier’s refund of overcharges in one-time, non-recurring income in that quarter’s earnings release, earnings conference call and Form 10-Q.

Note: Bold print and italics added by me.

In that same Q3 2009 8-K report (paragraph 7), claimed that Grant Thornton approved of the company's recognizing that 2009 $785,000 recovery of the 2008 overpayment to its fulfillment partner as income in Q1 2009, rather than restate its 2008 and 2009 financial reports, as I recommended in my blog:

As our auditors, Grant Thornton reviewed our financial statements in Q1 and Q2 2009 before we filed Form 10-Q’s for those quarters. Throughout 2009, our Audit Committee has repeatedly asked Grant Thornton if there was any accounting that it would do differently, and repeatedly received the answer, “No.” In fact, as recently as late-October 2009, Grant Thornton confirmed to us that it supported our accounting method for recognizing the $785,000.

Note: Bold print and italics added by me.

According to Grant Thornton's letter, it did not learn about the overpayment or recovery until October 2009 and they wanted to restate its 2009 financial reports, as I recommended. While Grant Thornton did not officially take a position that the 2008 financial reports must be restated, since its predecessor PricewaterhouseCoopers audited them, the restatement of the 2009 financial reports can only be accomplished by the restatement of the 2008 reports to correct the accounting error. Grant Thornton stated in its letter:

We disagree with the Company’s statement in paragraph 7 “that upon further consultation and review within the firm, Grant Thornton revised its earlier position” regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error. Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.

We have also read Item 4.02 of Form 8-K of, Inc. (“the Company”) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner. Further, the Company had additional items which we discussed that were still unresolved at the time we were dismissed, that could have a material impact on the first and second quarter financial statements for 2009. These items are identified by the Company in Paragraph 5 in item 4.01 of the Company’s Form 8-K.

Note: Bold print and italics added by me.

In other words, Grant Thornton says that they not know about the 2008 overpayment to a fulfillment partner or the Q1 2009 recovery of the overpayment until October 2009 or five months after filed its Q1 2009 10-Q report with the SEC. filed its Q1 2009 10-Q report on May 1, 2009 and Grant Thornton did not learn about the 2008 overpayment to the fulfillment partner or the 2009 recovery of that overpayment until October 2009 when it was reviewing the company's Q3 2009 financial reports.

The 2008 overpayment to the fulfillment partner and the 2009 recovery of that overpayment was never disclosed in's Q1 2009 10-Q report. It was hidden within recoveries from other fulfillment partners that were underbilled by the company from Q1 to Q3 2008, as I detailed above and in my last letter. Those other recoveries from fulfillment partners who were underbilled in 2008 were improperly reported as income in 2009 and the company must restate its 2008 financial reports to correct those errors, too.

In its 8-K filing above and during a recent conference call, had claimed that Grant Thornton agreed with the company that the recovery of the overpayment to the fulfillment partner was properly reported as income in 2009, even though that the company overpaid the fulfillment partner in 2008. However, Grant Thornton says that they never agreed with's improper accounting. Grant Thornton wanted to restate its prior financial reports to correct that error and other errors as I have detailed in my two previous letters (see below for links to those letters). later fired Grant Thornton after they told the company to restate its financial reports as I called for. Subsequently, the company filed an "unreviewed" Q3 2009 10-Q report, and omitted required Sarbanes-Oxley certifications from its CEO Patrick Byrne and its CFO Steve Chesnut. On Friday, disclosed that NASDAQ sent the company a letter warning of a possible de-listing:

...notifying the company that it violated NASDAQ Listing Rules when it filed its Quarterly Report on Form 10-Q for the period ended September 30, 2009 because the filing wasn’t reviewed in accordance with Statement of Auditing Standards No. 100. The letter also notified the company that the filing did not contain the certifications required under sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

Apparently, CEO Patrick Byrne duped New York Times columnist Floyd Norris, saying:

Grant Thornton, on the other hand, reviewed all this when they took the case, reviewed it at the end of Q1, reviewed it at the end of Q2, and in all cases they were asked, “Would you do this any other way?” and they said, “No.”

As I detailed above, concealed its overpayment to its fulfillment partner in its Q1 2009 10-Q (filed on May 1, 2009) and Grant Thornton did not learn about the overpayment until October. There is another $438,000 discrepancy that I outlined is my last letter, which may be one of the "unresolved" items that Grant Thornton referred to in its letter.'s false disclosures about the actions of its auditors and continued stonewalling of the restatement of its financial reports to comply with Generally Accepted Accounting Principles (GAAP) is a clear 10b-5 violation and also a violation of NASDAQ listing rules.

In any case, I warned Grant Thornton about their new audit client in March 2009. Finally, they know why!


Sam E. Antar

Annexed hereto:

08/05/09: Open Letter to the Securities and Exchange Commission: Stop GAAP Violations Now!

11/22/09: Open Letter to the Securities and Exchange Commission Part 2: New Information on's GAAP and SEC Disclosure Violations

Blog update:

Floyd Norris covers the latest events here , Gary Weiss covers it here, and Caleb Newquist here.


I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

I do not own securities short or long. My research on and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I will probably end up joining corporate miscreants such as Patrick Byrne in hell.

In any case, exposing corporate crooks is a lot of fun for a forcibly "retired" crook like me and analyzing's financial reporting is a forensic accountant's wet dream.


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