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Showing posts from January, 2010

Former Insider David Chidester in the Hot Seat

Hopefully, David Chidester will not allow himself to be made into the fall guy by (NASDAQ: OSTK) and its CEO Patrick Byrne and as the Securities and Exchange Commission continues its investigation of the company. David Chidester is certainly now in the "hot seat." As I will detail below, David Chidester was a ten year veteran insider at Chidester certainly knows where the black holes are to be found in's financial reporting. He is sure to face tough questioning by the SEC as its investigation expands.

David Chidester's tenure of CFO

During Chidester's tenure as CFO, every single initial financial report for every reporting period issued by from the company's inception to date has violated Generally Accepted Accounting Principles (GAAP) and other SEC disclosure rules. restated its financial reports two times due to accounting errors.

In February 2006, restated its f…

Unusual Timing of Medifast Auditor Resignation Announcement

Updated to include certain correctionsToday, Medifast (NYSE: MED) announced that Bagell, Josephs, Levine & Company, LLC (BJL) resigned effective January 22, 2010 as the company's independent auditors. BJL had merged with Friedman LLP on January 1, 2010 and Friedman was engaged as Medifast's new auditors. The company claims that:During the two years ended December 31, 2008 and from December 31, 2008 through January 21, 2010, there were no (i) disagreements between the Company and BJL on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to its satisfaction, would have caused BJL to make reference to the subject matter of such disagreements in connection with its report, or (ii) “reportable events,” as described in Item 304(a)(1)(v) of Regulation S-K.On January 25, 2010, Medifast announced its unaudited Q4 2009 financial results, but failed to disclose the resignation of BJL a…

Open Letter to KPMG: The Ties That Bind and Patrick Byrne With Deep Capture LLC

To KPMG:You must investigate’s (NASDAQ: OSTK) relationship with Deep Capture LLC as part of your continuing audit of the company and take steps to require management to make disclosures under Statement of Financial Accounting Standards No. 57 (SFAS No. 57) governing "Related Party Disclosures."At the direction of CEO Patrick Byrne, the company has used Deep Capture's resources, such as its web site, as a conduit to intimidate, harass, threaten, smear, and pre-text company critics. For example, Deep Capture Managing Partner Judd Bagley violated Facebook's Statement of Rights and Responsibilities and deceptively posed as "Larry Bergman" in an effort to gather personal information and spy on 's and Patrick Byrne's critics, including me (See Item 3 Safety and Item 4 Registration and Security).Altogether, Judd Bagley posted on the names of 7,483 "Facebook friends" of Patrick Byrne's …

Open Letter to KPMG: A Warning About, Your New Audit Client

Updated to include today's anouncement of David Chidester leaving the company


Recently, your firm was naive enough to become’s (NASDAQ: OSTK) new auditors, after the company fired and publicly vilified Grant Thornton rather than properly follow Generally Accepted Accounting Principles (GAAP) as recommended by them. Prior to firing Grant Thornton, the Securities and Exchange Commission started investigating your new audit client as a result of reports in this blog detailing how the company improperly setup “cookie jar” reserves to materially inflate its financial performance in future accounting periods (Q4 2008 and thereafter).

Roddy Boyd's exposed new troubling issues in the Big Money faces a probable investigation by the New York State Department of Taxation and Finance for its sales tax dodge scheme known as “Operation Heist and Freeze” that was exposed by investigative journalist Roddy Boyd in The Big Money.In addition, the SEC will widen i…

Roddy Boyd Article Will Cause SEC to Expand Investigation of and Probably Result in Sales Tax Investigation by New York

The Big Money published an article by investigative reporter Roddy Boyd will result in an expanding Securities and Exchange Commission of (NASDAQ: OSTK) and probably a new investigation by the New York State Department of Taxation and Finance for possible tax evasion by the company. Big Money obtained internal documents showing how the company withheld material information from investors about the company's internal control problems and liquidity problems in 2005 and 2006. The article details how CEO Patrick Byrne systematically intimidated, harassed, and attacked his critics to cover up mounting problems at the company. Perhaps the most surprising revelation of Roddy Boyd's article is's efforts to evade paying New York State sales tax in what was known as "Operation Heist and Freeze."New Issues for SEC to InvestigateThe Securities and Exchange Commission, which started investigating after this blog exposed

Open Memo to Medifast Chief Executive and CFO Michael S. McDevitt: Cut the BS and Address Troubling Issues Raised by Barry Minkow

See update at bottom of blog postOpen Memo to Medifast Chief Executive and CFO Michael S. McDevitt:I read Medifast’s (NYSE: MED) self-serving proclamations attacking my friend convicted felon turned fraud fighter Barry Minkow (co-founder of Fraud Discovery Institute or FDI) in both its Q3 2009 10-Q issued last November and reiterated in today’s press release detailed in part below:An Independent Committee composed of distinguished members of the Board of Directors of Medifast, Inc. (NYSE: MED) was constituted in February, 2009 to review public allegations of a third party, convicted felon Barry Minkow, and his network of alleged independent experts, posted on Minkow's website alleging illegal activities of Take Shape For Life, Inc., a direct selling company and a subsidiary of Medifast, Inc.The independent Directors' Committee, after investigation of facts and information concluded the allegations were false, misleading, and/or without merit. The same is true for the re-issue …

Open Letter to the Securities and Exchange Commission (Part 6): Conflicting Disclosures by Reveal Improper Audit Opinion Shopping

Open Letter to the Securities and Exchange Commission:After carefully examining certain conflicting and contradictory disclosures by (NASDAQ: OSTK), I recommend that you should also investigate whether the company engaged in improper audit “opinion shopping” in hiring both Grant Thornton, who replaced PricewaterhouseCoopers (PWC) as the company's auditors and KMPG, who replaced Grant Thornton after they were fired by the company.Brief BackgroundIn October 2008, restated its financial reports from Q1 2003 to Q2 2008 due to customer refund and credit errors. However, the October 2008 restatement did not include corrections arising from underbilled offsetting costs and reimbursements that were already earned from its fulfillment partners during those same corresponding periods, less a reasonable estimate of uncollectable amounts. In other words, should have gone back and corrected or restated its financial reports to reflect income already ea…