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Is Shopping for an Audit Opinion?

Updated (NASDAQ: OSTK) just hired KPMG as its auditors to replace Grant Thornton who was recently fired by the company, despite previous assurances by CEO Patrick M. Byrne (photo on right) and company President Jonathan E. Johnson that they would not hire new auditors until after the Securities and Exchange Commission Division of Corporation Finance completed its review of certain financial reporting irregularities.

Both the SEC Enforcement Division and Division of Corporation Finance started investigating after I alerted them that the company violated Generally Accepted Accounting Principles (GAAP) by improperly establishing what is known as "cookie jar" reserves to inflate its financial performance starting in Q4 2008. Afterwards, fired Grant Thornton as the company's auditors and publicly vilified them when they recommended another restatement of the company's financial reports, just as I previously called for in my blog. The company filed an "unreviewed" Q3 2009 10-Q and CEO Patrick Byrne and CFO Steve Chesnut did not sign required Sarbanes-Oxley certifications. NASDAQ sent a letter warning the company of a possible de-listing. NASDAQ recently granted an extension to comply with its listing requirements.

Patrick Byrne and Jonathan Johnson went back on their promise that they would not shop for an audit opinion. Both Byrne and Johnson previously told investors that would wait until after the SEC Division of Corporation Finance completed its review of the company's financial disclosures. See quotes from transcript below:

Willis Taylor - Gagnon Securities - Analyst

Since you've dismissed your auditor for a very specific accounting choice, when you go to select a new auditor, how do you prevent yourself from being accused of opinion shopping?

Jonathan Johnson - - President

That's a great question, Louis, and that's part of the reason that we've decided not to select a new auditor until this -- until we resolve this issue with the SEC.

We do not want to be accused of opinion shopping. We'd like the SEC to help us figure out -- we'd like them to say we've done it the right way or we've done it the wrong way. Once they say one of those two, we don't need to opinion shop.

Patrick Byrne - - Chairman and CEO

But, so, I would even say to the point that when people have contacted us, we have discouraged any communication on the grounds that we got -- for just that reason -- well, I have the -- no matter who we talk to now, then whoever we ultimately pick, people are going to say, well, you did this because you opinion shop.

So we're really not having discussions with anybody. It's nice to get phone calls, but we're not talking to anybody until we get through this just to prevent -- just as a prophylactic measure.

Thank you, Willis. Did you have another question?

KPMG is taking a client with no management integrity as is well advised to study SAS No. 99 about "Consideration of Fraud in a Financial Statement Audit" regarding the unethical "tone at the top" set by's unprincipled management team.

Every single initial financial report for every reporting period issued by has failed to comply with GAAP and other SEC disclosure rules since the company's inception. has restated its financial reports two times in the last three years and now is trying to avoid a third restatement of financial reports resulting from its improper use of "cookie jar" reserves to inflate its financial performance from Q4 2008 to Q3 2009. has engaged in a vicious campaign to stalk, harass, and intimidate its critics. Judd Bagley, a creepy cyberstalker hired by Patrick Byrne, recently violated Facebook's Statement of Rights and Responsibilities and deceptively posed as "Larry Bergman" in an effort to gather personal information and spy on Patrick Byrne's critics, including me.

Altogether, Judd Bagley posted on (a blog funded by Patrick Byrne and heavily promoted on's web site) an enemies list including the names of 7,483 "Facebook friends" of Patrick Byrne's critics. That enemies list included spouses, minor children, and other people that have nothing to do with, Patrick Byrne, or Byrne's delusional short selling conspiracy theories.

Judd Bagley, posing as an imposter, even tried to "Facebook friend" minor children! The nauseating Bagley even encouraged readers to dig into the backgrounds of family members of Byrne's critics, even their minor children, too.

Investigative reporter and blogger Gary Weiss's discovered the pretexting scam by Barry Ritholtz, another stalking victim of the company, has called for a boycott of in his widely followed blog (107,000 subscribers).

In Going Concern, Caleb Newquist wrote:

Sorry, dear reader but apparently the high profile cat fight between the company and Grant Thornton wasn’t enough to scare KPMG off. Not even the very public revelation of Patsy’s creepy-ass stalking of Overstock critics in the financial media and blogosphere caused the KPMG partners in SLC to turn this client down.

Oh, and not to mention a management team who thought that filing unreviewed 10-Q was the best course of action.

While Adrienne Gonzalez, another widely read accounting blogger, was even more blunt in her criticism of KPMG:

F..cking KPMG. Come on, you can do better than this.

She added:

KPMG just sold its ass up the river.

Hopefully, KPMG (see explanatory note below) has learned from its improper establishment of "cookie jar" reserves that aided the Crazy Eddie fraud in 1986 (See my Crazy Eddie Fraud page and section entitled, "Too much earnings inflation in fiscal year 1986"). However, KPMG did not seem to learn anything about taking clients like Crazy Eddie that lack management integrity.

Gary Weiss noted:

Hey, somebody had to get the job eventually. Bernie Madoff's auditor is unavailable, so Byrne chose the next best thing -- the auditor who, as Sam points out, let Crazy Eddie get away with murder.

KPMG's audit crew was a fun bunch to hang with, back in the day. During the Crazy Eddie investigation, I was once asked by the SEC if I got the audit partner "laid, relayed, and parlayed."

KPMG is well advised to read my open letters to the SEC (please note that each letter is based on's deliberately vague, incoherent, and inconsistent, and often contradictory disclosures at the time each one was issued):

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

11/23/09: Open Letter to the Securities and Exchange Commission Part 3: Lied About Grant Thornton and Concealed Error

11/26/09: Open Letter to the Securities and Exchange Commission Part 4: Patrick Byrne Ignores Real Issues As He Vilifies Grant Thornton

12/14/09: Open Letter to the Securities and Exchange Commission (Part 5): Issuer Retaliation Complaint Against

Explanatory Note: Initially, Main Hurdman was Crazy Eddie's auditors until they merged with Peat Marwick Mitchell to become Peat Marwick Main. After another merger, Peat Marwick Main became known as KPMG.

Written by,

Sam E. Antar

Other recommended blogs:

Con Artist Hall of Infamy: Crazy Eddie inductee tells about walls of false integrity


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.

KMPG has sponsored at least two of my uncompensated fraud lectures at certain universities.


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