Barry Minkow's Report on Speedway Motorsports Details Troubling Disclosures and Raises Serious Concerns

The Fraud Discovery Instititute (FDI) led by my close friend convicted felon, turned fraud fighter, Barry Minkow has issued a new report entitled, "Ten Red Flags for Fraud at Speedway Motorsports, Inc. (NYSE: TRK)." Minkow started a new website called and posted a You Tube Video to explain details of his investigative report.

According to FDI's report, "There are plenty of signs pointing to fraud and mismanagement at this company [Speedway Motorsports]." The report goes on to list ten red flags (download here). FDI latest report focuses on inconsistent and contradictory disclosures by management and the company. It also carefully scrutinizes related party transactions and certain stock pledges that I will describe in more detail below.

Minkow has publicly disclosed that he owns put options in Speedway Motorsports and almost always holds a short position in companies that he investigates.

Minkow's latest report, follows up on a background check by FDI about two weeks ago that exposed Speedway Motorsports President and Chief Operating Officer Marcus G. Smith lying about his academic credentials in an SEC filing which claimed that he graduated from the University of North Carolina at Chapel Hill. Such a false claim about Smith's academic background also violated his company's Code of Business Conduct and Ethics.

O. Bruton Smith, who is the Chairman and CEO of Speedway and his Marcus Smith's father, controls about 67.5% of the company's stock. How could he not know that his son did not graduate from college? Did Marcus Smith lie to his father, too?

With such open questions about the two top officers at Speedway Motorsports who control most of the stock, I can understand why Minkow decided to further investigate Speedway's financial disclosures, especially related party transactions.

In any company, the centrality of control by one or a few closely related persons makes it relatively easy for management to circumvent internal controls and commit fraud. In both Minkow's fraud at ZZZZ Best and my frauds at Crazy Eddie, too much power at the top of our corporate hierarchies, made it relatively easy for us to commit our crimes. Such internal control issues are recognized as important auditor considerations for possible fraud under Statement of Auditing Standards No. 99.

Barry Minkow believes that if you lie about your educational background, you are capable of lying about anything else, too. In this case, apparently Minkow believes that where there is smoke in the form of phony academic credentials, there is fire in the form of other possible frauds, too.

Pledged Shares Raise Serious Concerns

The most interesting aspect of FDI's report for me, relates to O. Bruton Smith's pledged stock shares that potentially could cause Speedway's stock to plunge:

According to the most recent proxy, O. Bruton Smith and Sonic Financial (a company owned primarily by Mr. Smith) collectively own more than 29 million shares (67.5%) of the company's outstanding common stock. Over 10.5 million of those shares have been pledged as collateral for loans. About half of the pledged shares are for loans made to Sonic Automotive (another company of which Smith is the majority owner), and the other half are pledged on debt for which no information is provided.

Sonic Automotive is clearly in serious financial trouble, and its auditors have advised that the 2008 audited financial statements might need a "going concern" qualification. The company is not likely to survive the next year. Sonic Automotive has apparently violated lending covenants, which would put this pledged stock in jeopardy.

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

Sonic Automotive's (SAH) most recent SEC filing corroborates FDI's report:

The management of Sonic Automotive, Inc. (the “Company”) has determined that the Company is unable to file within the prescribed time period, without unreasonable effort and expense, its Form 10-K Annual Report for the period ended December 31, 2008 because management needs additional time to finalize and analyze its financial statements. While the Company was in compliance with its financial covenants under its syndicated Credit Agreement dated February 17, 2006, as amended (the “Credit Agreement”) as of December 31, 2008, management is assessing whether the Company will be in compliance with its covenants through December 31, 2009. The Company’s independent registered public accountant recently advised the Company that it would have to consider including a “going concern” modification in its audit report for the Company’s 2008 financial statements because of possible noncompliance with a financial covenant of the Credit Agreement as of completion of the quarter ending June 30, 2009. The issuance of a “going concern” modification by the Company’s independent registered public accountant would, by itself, violate a separate covenant of the Credit Agreement. The Company has commenced discussions with the Administrative Agent of the Credit Agreement in order to obtain (A) an amendment of the Credit Agreement to modify such financial covenant, and/or (B) a waiver of any instances of noncompliance, including the covenant implicated by a “going concern” modification in the audit report for the Company’s 2008 financial statements.

Because the assessment of the Company’s financial position and liquidity depends to a significant degree upon its ability to obtain the amendment and/or waiver, which the Company cannot obtain by the close of business on March 16, 2009, the Company is unable to complete its Form 10-K in a timely manner. The Company plans to file its Form 10-K by March 31, 2009, as prescribed in Rule 12b-25.

The Company cannot be assured that an amendment and/or waiver will be obtained from the lenders under the Credit Agreement on acceptable terms, on a timely basis, or at all, or that any amendment or waiver obtained will avoid the Company receiving a “going concern” modification in the audit report of the Company’s independent registered public accountants. The amendment and/or waiver could contain additional terms which, among other things, could increase the Company’s interest expense, result in increased fees, and limit the Company’s ability to fund our operations or pay outstanding indebtedness, including but not limited to payment of the Company’s 5.25% Convertible Senior Subordinated Notes which mature on May 7, 2009. If the amendment and/or waiver are not obtained, the lenders could require the Company to repay all amounts outstanding under the credit facilities, which could also cause cross defaults of other debt and lease facilities, all of which would have a material adverse effect on the business, financial condition, liquidity and operations of the Company and raise substantial doubt about the Company’s ability to continue as a going concern.

Note: Bold print and italics added by me.

Therefore, about 5 million shares of Speedway Motorsports 43.128 million shares or about 11.6% of the outstanding stock are pledged as collateral for certain loans made by Sonic Automotive. However, Sonic Automotive may be out of business within a year.

A Sonic Automotive bankruptcy can potentially cause Speedway's stock to plunge, if lenders take possession of Speedway Motorsports stock collateral and sell such stock in the open market to recover losses.

I could not find any risk factor in Speedway Motorsports recent 10-K relating to such stock pledges. The absence of such a risk factor disclosure is one red flag my friend Barry missed.

Written by:

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


I do not own any position in any of the companies named in this blog post, long or short. Up to November 2007, I provided funds to Fraud Discovery Institute to help pay costs of its investigations. I had no control over any monies spent by FDI. I am not an owner, manager, employee, or consultant of Minkow or FDI and I have not received any compensation from them.

Barry Minkow and I are close friends. We usually alternate who picks up the tab for meals. However, he paid for the last two meals. Therefore, the next two meals are on me.

Other information:

Blog posts on Barry Minkow here.

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.

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

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.

Note: Bold print and italics added by me.

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.

Understanding the Mind of Bernie Madoff

Understanding the mind of Bernie Madoff and how to prevent similar frauds from happening again.

Convicted felon David Alexander and I are inteviewed by Alexis Glick on the Fox Business Channel "Money for Breakfast" show.

Part 1:

What's going through Bernie Madoff's mind while committing fraud.

Part 2:

What can be done to prevent schemes like Madoff from happening again.

My other comments on Bernie Madoff and preventing similar crimes from happening again:

Conde Nast Portfolio - Preventing the Next Bernie Madoff by Gary Weiss

Breaking Madoff News - What Makes Bernie Madoff Tick: Inside the Criminal Mind of Sammy Antar by Deborah Strober

Cityfile New York - A Few Words from a Fellow Fraudster by Remy Stern

Written by:

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