Wednesday, March 31, 2010

Did InterOil Commit Securities Fraud?

In the latest salvo of its battle to expose fraud, deceit, and misconduct by InterOil (NYSE: IOC) and its CEO Phil Mulacek, Fraud Discovery Institute sent former LA Times investigative reporter, now an iBusiness Reporting blogger, William Lobdell to a Texas courthouse to pour "thousands of pages of legal documents" and discovered even more damaging information of an ongoing pattern of deceit involving the company and Mulacek. William Lobdell's detailed blog report can be read here.

iBusiness Reporting is a division of Fraud Discovery Institute (co-founded by convicted felon, now fraud fighter Barry Minkow). Both Lobdell and Minkow publicly acknowledge holding short positions in InterOil securities.


Possible Securities Fraud

Separate and apart from new information discovered by Minkow and Lobdell, this blog has uncovered troubling false and misleading disclosures by InterOil in filings with the Canadian Securities Commissions and the Securities and Exchange Commission that violate securities laws in both countries. Certain disclosures by InterOil in financial reports conflict with disclosures uncovered in two separate court cases, as detailed below.

Zeigler Litigation

For example, in June 2009, this blog exposed how InterOil filed a false SEC form Regulation D claiming it paid no fees for a $95 million private placement of convertible debt in 2008.

In a July 2009 blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I provided detailed evidence of a stock market manipulation scheme involving InterOil, John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta. I believe that they conspired to raise the stock price of InterOil's shares to force the conversion of certain outstanding convertible debt to common stock.

InterOil's material omission of fees in its SEC form Regulation D filing later enabled it to conceal in other filings John Thomas Financial's role in helping the company raise money from investors.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from his company's prior investment banking relationship with InterOil. Afterwards, John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil. Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

A joint investigation with Fraud Discovery Institute, securities litigator Howard Sirota, and this blog found Court documents in the Zeigler litigation that revealed the payment of undisclosed fees by InterOil to Clarion Finanz AG, headed by Carlo Civelli who controls a major stake in InterOil. Originally InterOil was dealing directly with John Thomas Financial in helping it raise funds for its $95 million private placement of convertible debt securities.

However, that relationship was papered over to instead make it look like John Thomas Financial was working for Clarion. In other words, InterOil deliberately set up Clarion to act as a buffer between the company and John Thomas Financial. In any case, InterOil disclosed no fees paid to Clarion or indirectly paid to John Thomas Financial in its SEC form Regulation D filing and later filings. Therefore, both Clarion's and John Thomas Financial's role in helping InterOil obtain financing was concealed.

In addition, those Court documents revealed that InterOil was still doing business with banned stock promoter Carl Caserta, after the company lied to the New York Times by telling them that it stopped doing business with Caserta.

In other words, InterOil told one story to investors (no fees paid to raise $95 million of convertible debt in SEC form Regulation D) and while its internal company documents told a conflicting story to the Court (investment banking fees paid). (Full details here.)

Nikiski Partners Litigation

Likewise, former LA Times investigative journalist now working for Fraud Discovery's iBusiness Reporting blog uncovered a similar scheme by CEO Phil Mulacek in an ongoing Court battle between him and InterOil's original seed money investors. Those investors are alleging that Mulacek and various entities under his control defrauded them.

Originally, the investors sued InterOil, Mulacek, and Nikiski Partners, which is controlled by Mulacek (Todd Peters, et. al. v. Phil Mulacek et. al.). Mulacek attempted to throw Nikiski into bankruptcy (in re Nikiski Partners, Ltd.) to derail the investor's lawsuit. In that case, Mulacek's and his attorneys made claims to the Court that conflict with InterOil's disclosures to investors, as I will detail below.

Last week, Fraud Discovery went public with its investigation and issued a press release and Lobdell published a blog report detailing their findings. Below is an excerpt from Fraud Discovery's press release summarizing Lobdell's report:
...William Lobdell details stunning allegations made by about 20 original investors in what is now InterOil. Among the claims: InterOil CEO Phil Mulacek forged documents, secretly created a shadowy Bahamian company, and ignored "crippling conflicts of interest" in order to enrich family, friends and himself.
So desperate was Mulacek to evade the consequences of his actions relating to a case going to trial this May that he filed bankruptcy for a company he controls in what seems an attempt to derail the lawsuit, which is asking up to $1.3 billion in derivative or stockholder claims.

In one candid admission, Mulacek and his attorneys testified that even a $50 million judgment for the plaintiffs would be "devastating" to InterOil. The bankruptcy testimony also showed the precarious financial condition of InterOil, with $60 million in cash and massive amounts of money needed to drill wells ($1 billion), construction of a pipeline ($900 million) and the building and construction of a liquefied natural gas (LNG) plant ($5-7 billion).

To date, InterOil hasn't found any commercial oil or gas.

Federal Judge Marvin Isgur ruled that Mulacek had filed the bankruptcy in "bad faith" and the executive's credibility was "diminished" by building a key argument for bankruptcy upon a lie.

Note: Bold print and italics added by me.
If even a $50 million judgment would be "devastating" to InterOil and a favorable verdict by the Plaintiff's against Mulacek would threaten InterOil's licenses for drilling on Papua New Guinea land as claimed by Mulacek's attorneys, you would never know it from the company's filings with the Canadian Securities Commissions and the Securities and Exchange Commission.

Let's review InterOil's financial reporting disclosures.

InterOil Disclosures

While the Todd Peters litigation had been going on, InterOil did not even disclose it in its 2005 and 2006 Annual Information forms. In 2007, InterOil finally disclosed the litigation but said that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries." (See InterOil 2007 Annual Information page 50.)

In its 2008 Annual Information form, InterOil provided more details of the actual allegations in the Todd Peters litigation:
Plaintiffs contend that the defendants, including the Company, breached their fiduciary duties to the plaintiffs as part of these transactions and also assert claims for knowing participation in a breach of a fiduciary duty, common law fraud, fraudulent inducement, statutory fraud, securities fraud, breach of contract, investor oppression and conspiracy. Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs, an accounting and access to books and records. The Company and other defendants are vigorously contesting the matter. Management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries. (See InterOil 2008 Annual Information page 43.)
Note: Bold print and italics added by me.
Finally, in its 2009 Annual Information form, InterOil disclosed that:
If, however, plaintiffs are successful in obtaining a favorable verdict, actual  damages could exceed $125,000,000.  Plaintiffs also seek unspecified punitive damages, attorneys' fees, expenses and court costs.  The case is set for trial beginning in October 2010. The Company and other defendants are vigorously contesting the matter. If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries. (See InterOil 2009 Annual Information page 43.)
Note: Bold print and italics added by me
.For fiscal year 2007, InterOil reported a net loss of $28,912,908 and shareholder's equity of $96,098,569 and claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries."

For fiscal year 2008, InterOil reported a net loss of $11,797,077 and shareholder's equity of $227,133,927 and acknowledged that "Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs." However, InterOil still claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries."

For fiscal year 2009, InterOil reported a net profit of $6,082,627 and shareholder's equity of $441,976,093. InterOil bragged, "The 2009 year is the first recording an annual net profit." This time InterOil disclosed that "actual  damages could exceed $125,000,000.... If however, plaintiffs succeed in obtaining a judgment in the amount they seek, it could have a material adverse effect on the Company or its subsidiaries." (Source: See InterOil News Release dated March 1, 2010.)

That same year, InterOil made the Guinness Book of World Records for its claimed “world-record” gas flow from a certain natural gas well owned by the company.

InterOil CEO Phil Mulacek under fire
Mulacek's Financial Disclosures in Court Transcripts

According to the December 30, 2009 Bankruptcy Court transcript Attorney Thomas M. Kirkendall said:
InterOil, as Mr. Mulacek testified that InterOil wouldn't even be able to pay a $50 million judgment, much less a 100 million or several hundred millions or a billion-dollar judgment, as the Peters group is seeking, without substantial third party financing.
Compare InterOil's Financial Disclosures with CEO Phil Mulacek's Court Disclosures

As of December 31, 2009 InterOil's shareholder equity was reported at $441,976,093 compared to $227,133,927 at the end of 2008. InterOil reported a 2009 net profit of $6,082,627 compared to a 2008 net loss of $11,797,077. As I detailed above, that same year InterOil made the Guinness Book of World Records for its claimed “world-record” gas flow from a certain natural gas well owned by the company and the company reported its first annual operating profit.

In its 2009 Annual Information, InterOil claimed that a judgment exceeding $125,000,000 and not less than $125,000,000 "could have a material adverse effect on the Company." However, Mulacek told the Bankruptcy Court that InterOil couldn't even pay a $50 million judgment without substantial third party financing.

The fact that InterOil cannot even satisfy a $50 million judgment "without substantial third party financing" is a "material adverse event" and that threshold should have been clearly disclosed by the company in its 2009 Annual Information. Instead, InterOil's 2009 financial disclosures mislead investors into believing that a possible judgment exceeding $125,000,000 "could have a material adverse effect on the Company or its subsidiaries."

In 2008, when InterOil was in a far worse financial condition than in 2009, the company reported a 2008 net loss of $11,797,077 compared to a 2009 net profit of $6,082,627. The company's 2008 shareholder's equity was $227,133,927 compared to $441,976,093 in 2009 or about 50% less equity. InterOil claimed that the "Plaintiffs are seeking actual damages of up to $118,068,759.00 and unspecified punitive damages, attorneys’ fees, expenses and court costs." In fact, InterOil had not yet made it into the Guinness Book of World Records.

Yet, with its far worse financial condition reported in 2008 compared to 2009, InterOil claimed that "management does not believe the litigation will have a material adverse effect on the Company or its subsidiaries." InterOil gave no indication that a even a $50 million possible judgment could have a "material adverse effect" on the company.

Conclusion

The main issue is that InterOil financial disclosures conflict with and are inconsistent with disclosures in either internal company documents or representations by its CEO Phil Mulacek found in two separate Court cases. That is out and out fraud!

Whether or not InterOil eventually settles the Thomas Peters litigation, the company and Phil Mulacek have to answer for false, misleading, and conflicting disclosures to investors. Securities regulators have been notified.

Written by:

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 any InterOil securities, long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon, turned fraud fighter Barry Minkow) in researching InterOil. Barry Minkow and William Lobdell (iBusiness Reporting) have publicly stated that they have held short positions in InterOil securities.

Monday, March 29, 2010

Another Key Departure at Overstock.com: It Went Unreported, Too

Another key officer, former Treasurer Rich Paongo has quietly left Overstock.com (NASDAQ: OSTK) amid an ongoing Securities and Exchange Commission investigation of financial reporting violations by the company. However, Overstock.com made no disclosure to investors of his February 2010 departure from the company.

This morning, investigative journalist and blogger Gary Weiss received an anonymous comment on an old blog post tipping him off about Paongo's departure:

Anon

Here's a tidbit - you mention Rich Paongo in this article...he "left the company" as well
After Gary Weiss emailed me the comment, I checked Rich Paongo's linked in profile which discloses him leaving Overstock.com in February 2010 after 8 years and 9 months of service. According to SEC Form 8-K instructions:

If the registrant’s principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, or any named executive officer, retires, resigns or is terminated from that position, or if a director retires, resigns, is removed, or refuses to stand for re-election (except in circumstances described in paragraph (a) of this Item 5.02), disclose the fact that the event has occurred and the date of the event.
Apparently, it's Overstock.com's position that none of the above applies to Rich Paongo. However, Paongo's departure from Overstock.con can be viewed as a material event requiring disclosure amid an expanding SEC investigation and given Paongo's role at the company. It's certainly something that investors would want to know about.

Paongo's emails back and forth to former CFO David Chidester, who suddenly left the company under a cloud as it turns out at around the same time Paongo left, are under probable scrutiny by the SEC in their investigation of the company.

According to Roddy Boyd's article in The Big Money, Overstock.com failed to disclose certain cash flow problems and material weaknesses in internal controls to investors starting around 2005. Paongo's emails to Chidester were cited by Boyd.

Paongo's linked in profile cites that he was "involved in negotiations for RFP that reduced D&O premiums by 50% but expanded insurance coverage by 40%." Overstock.com will need the expanded D & O liability coverage.

Recently, Overstock.com was required to restate its financial reports for the third time in three years, after this blog exposed GAAP and SEC disclosure violation by the company. Rather than restate its financial reports to correct those violations, CEO Patrick Byrne orchestrated a vindictive retaliation campaign against me and other company critics.

In November 2009, Overstock.com fired Grant Thornton as its auditors and Byrne publicly vilified them after they agreed with my recommendation that the company restate its financial reports to correction financial reporting violations. In February 2010, Overstock.com finally announced that it was restated its financial reports to correct certain material financial reporting violations that were exposed out in this blog. On March 16, 2010, Overstock.com delayed filing its 2009 annual 10-K report as new previously undisclosed GAAP violations were revealed by the company.

Written by:

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 Overstock.com securities short or long. My research on Overstock.com 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. Analyzing Overstock.com's financial reporting is a forensic accountant's wet dream and Patrick Byrne is about to become the SEC's new orgasm.

The InterOil Saga: Convicted Felons Battle Current Breed of Stock Market Miscreants

Updated:

Oliver Stone should take note. We may have the makings of "Wall Street 3." I am just kidding about the movie idea, but very serious about InterOil's and John Thomas Financial's misconduct uncovered so far.

Here we have InterOil (NYSSE: IOC), what I believe is a sleazy company run by dishonest CEO Phil Mulacek, aided by a stock pumping promoter John Thomas Financial CEO Thomas Belesis who apparently pretends like he wants to clean up Wall Street's image, and  mixed-up naive young actor Shia LaBeouf apparently fantasizing as if he is living out in real life a role he is playing in the upcoming movie, "Wall Street: Money Never Sleeps."

Fraud Discovery Institute (co-founded by convicted felon, turned fraud buster and short seller) Barry Minkow, iBusiness Reporting blog (a division of Fraud Discovery written by former LA Times investigative journalist, turned blogger and short seller William Lobdell), and this blog plan to continue our respective investigations and document misconduct at InterOil and John Thomas Financial.

There is a saying, "It takes one to know one." Plenty of what is going on with InterOil and John Thomas Financial reminds Minkow and me of our own felonious pasts as we continue to uncover patterns of inadequate, inconsistent, misleading, false, and contradictory disclosures by InterOil and John Thomas Financial.

Below is a summary of last week's unfolding events as quoted from various sources, media, and blogs. My additional commentary follows.

March 25, 2010: New York Post - Shia's 'slick' tip: Actor LaBeouf continues broker role off camera by Kaja Whitehouse

Actor Shia LaBeouf appears to be taking his role as Gordon Gekko's protégé in the upcoming "Wall Street" movie a little too seriously.

After preparing for his turn as a hedge-fund trader by visiting trading floors of small brokerage houses, LaBeouf in the April issue of GQ talked up the stock of an oil and natural gas exploration company that has yet to produce any of either.

"IOC's momentum is major, and it will surprise to the upside," LaBeouf said in a text message to the GQ article's author, Adam Sachs, using the trader lingo he apparently picked up while prepping for the film.
The 23-year-old star of the "Transformers" franchise was referring to InterOil, a Canadian firm with the New York Stock Exchange ticker symbol IOC that says it's searching for natural gas and oil in Papua New Guinea.
However, after seven years of exploration and drilling, InterOil has yet to produce any proven commercial oil or gas reserves.

Nevertheless, InterOil's stock is up an astounding 385 percent since the start of 2009 -- a feat critics attribute to InterOil's flurry of uplifting press releases about its drilling and exploration plans.
[Snip]
LaBeouf in the GQ article boasted that his apparent training at trading stocks helped him parlay $20,000 into $450,000
Read more here.

March 25, 2010: White Collar Fraud -  Can Shia LaBeouf Help Shed Light on a Stock Market Manipulation Scheme Involving InterOil and John Thomas Financial? by Sam E. Antar

Apparently, Shia LeBeouf learned about InterOil from John Thomas Financial. It would be interesting to find out what he knew, when he knew it, and if he traded any InterOil shares. Maybe he can provide details on how John Thomas Financial  pushed InterOil  shares on it's customers? Afterall, LeBeouf learned about how the underbelly of Wall Street operates from John Thomas Financial and other firms to prepare for his leading role in the movie.

For more details, please read my full blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme." In that blog post, I documented how InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a $95 million convertible debt offering. However, documents submitted in a court case show that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees.

Those same court documents show that InterOil concealed John Thomas Financial's and banned stock promoter Carl Caserta's role in the debt offering. About a year earlier, InterOil told the New York Times that it was not doing business with Caserta.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from their prior investment banking relationship with InterOil. John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil.

Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.
Read more here.

March 25, 2010: Benzinga - Shia LaPump by Joshua Brown

This Shia LaBeouf kid is apparently trying his best to make sure that any enthusiasm for the Wall Street sequel is completely drained by the time it hits theaters.

With every puff piece on how he's shown himself a 2000% return in his personal stock trading account, more eyes roll and more sighs of disappointment can be heard amongst the film's would-be core audience - Wall Street itself.

The latest ridiculousness involves Shia's pumping of an experimental oil stock that has no earnings from oil exploration or production of any kind as yet...

[Snip]

Kid, can you just talk about your movie and stop digging your credibility hole any deeper?  You seem like a nice guy and no one is rooting against you.  When you read this stuff you're saying five years from now, you're going to cringe in embarrassment like the rest of us are doing as we speak.

Try to be a little more Sheen-like circa 1987...in other words, just be cool.
Read more here.

March 25, 2010 - Economic Policy Journal - Shia LaBeouf Caught Up In Rumors He Is Touting a Possibly Edgy Stock by Robert Wenzel

Shia LaBeouf trained at John Thomas Financial to study for his role in the upcoming Oliver Stone/Michael Douglas motion picture "Wall Street 2: Money Never Sleeps," according to Sam Antar, former Crazy Eddie fraudster, turned fraud buster.

Antar claims that a stock market manipulation scheme took place awhile back involving InterOil (NYSE: IOC), John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta.

[Snip]

This the SEC may look into. A naive actor is red meat for the SEC, whether as witness or participant, unlike other potential cases.
Read more here.

March 26, 2010: iBiz Reporting - Company controlled by InterOil CEO files 'bad faith' bankruptcy; Mulacek dumps nearly $1.5 million in stock 2 days before filing for federal protection; tries to derail civil fraud case that seeks up to $1.3 billion in damages and could be 'devastating' to InterOil by William Lobdell

A company controlled by Phil Mulacek, chief executive officer of InterOil Corp. (NYSE: IOC), filed a "bad-faith" federal bankruptcy in December in an attempt to derail a potentially massive civil judgment in a fraud case against him and companies he controls, according to court documents filed in Houston.

Less than a month after the filing, federal Judge Marvin Isgur in Houston ruled that Nikiski Partners—a corporation whose $2 million investment in a used oil refinery gave birth to InterOil, one of Wall St.’s high-flying stocks in 2009—had filed the bankruptcy in “bad faith.” (Read transcript here.)

Two days before filing for bankruptcy, Mulacek, through his holdings in Nikiski Partners, dumped nearly $1.5 million worth of InterOil stock, according to the Canadian Securities Commissions.
Read more here.

March 26, 2010: Fraud Discovery Institute - Is InterOil (NYSE: IOC) Built on a foundation of fraud? by Barry Minkow

A potentially massive lawsuit by many of InterOil Corporation's (NYSE: IOC) original investors, who are seeking up to $1.3 billion in damages, worried company CEO Phil E. Mulacek so much that a certain company he controls filed a bad-faith bankruptcy in an apparent attempt to derail litigation set for trial this May. In fact, federal Judge Marvin Isgur said that Mulacek's credibility "diminished" by building a key argument in bankruptcy papers upon a lie.

In a special report released today by iBusiness Reporting ('http://www.ibizreporting.com') - a division of the Fraud Discovery Institute Inc., former Los Angeles Times journalist William Lobdell details stunning allegations made by about 20 original investors in what is now InterOil. Among the claims: InterOil CEO Phil Mulacek forged documents, secretly created a shadowy Bahamian company, and ignored "crippling conflicts of interest" in order to enrich family, friends and himself.

So desperate was Mulacek to evade the consequences of his actions relating to a case going to trial this May, that he filed bankruptcy for a company he controls in what seems an attempt to derail the lawsuit, which is asking up to $1.3 billion in derivative or stockholder claims.

In one candid admission, Mulacek and his attorneys testified that even a $50 million judgment for the plaintiffs would be "devastating" to InterOil.
Read more here.

March 26, 2010: White Collar Fraud - Is InterOil Built on a Foundation of Fraud? by Sam E. Antar

When a company like InterOil starts on a corrupt foundation, everything that follows continues to be corrupt. In many ways, Phil Mulacek's transgressions against investors remind me of me, back in my criminal days at Crazy Eddie. We both exploited the hopes of our investors with "spin and lies." During its entire existence, InterOil has issued an endless string of press releases hyping its future prospects and selling hope to gullible investors. Yet, after almost a decade, InterOil has no proven commercially exploitable reserves to show for it.
[Snip]

If Phil Mulacek can screw his original seed investors and his company has shown its capability to file false and misleading reports with the SEC, he is clearly capable of screwing anyone else as he and his cronies continue to sell hope to gullible investors.

Read more here.


March 26, 2010: Blogging Stock - Interoil's Strange Comments on Stock Price by Zac Bissonnette

Hedge fund manager Whitney Tilson is short the company and in a recent email newsletter noted that Interoil could be could be "one of the largest stock promotions ever, going on right under [the SEC's] nose..."

What's especially interesting about this latest Interoil news mention is this line from a New York Post piece: "InterOil spokesman Wayne Andrews said that although the company isn't currently making money on its oil and gas exploration, and that a plant may take to 2015 to build, the stock is not overvalued."

It is extremely unusual for a corporate spokesman of a public company to argue to the media outright that the company's stock is not undervalued. Ken Lay and Jeff Skilling used to do that in the days of Enron but, in the post-Sarbanes Oxley world, it never happens.
Read more here.

March 26, 2010: Before It's News - Shia LaBeouf (Wall St. 2) Caught Up In Rumors He Is Touting a Possibly Edgy Stock by "Lois Lane"

Shia LaBeouf trained at John Thomas Financial to study for his role in the upcoming Oliver Stone/Michael Douglas motion picture "Wall Street 2: Money Never Sleeps,"  according to Sam Antar, former Crazy Eddie fraudster, turned fraud buster.

Antar claims that a stock market manipulation scheme took place awhile back involving InterOil (NYSE: IOC), John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta.
Read more here.

March 26, 2010: Deal Breaker -  Shia LaBeouf Pawn In John Thomas Financial’s Attempt To Pump InterOil Stock? by Bess Levin

Yesterday we mentioned that thespian, Level III CFA candidate and noted stock picker Shia LaBeouf had been talking up InterOil, an oil and natural gas exploration company. “IOC’s momentum is major, and it will surprise to the upside,” LaBeouf said in a text message to the GQ article’s author, Adam Sachs, who wrote about ShiLa’s new hobby (making it rain all from the comfort of his boxers) for the magazine’s April issue. But where did the master trader get the idea? Sure he meets with Goldman Sachs execs on the reg and is thisclose to becoming a CFA but is he really that good? I’d like to give him the benefit of the doubt (he’s going to be running one of the most powerful hedge funds in the world one day so trying to stay on his good side and all that) but others are thinking the budding BSD had some help from his friends at John Thomas Financial (the people who brought you the pride rally and breasts as napkins).
Read more here.

March 26, 2010: Business Insider - What's The Story Of Shia LaBeouf Pumping InterOil? by Lawrence Delevinge
LaBeouf and InterOil?

Earlier this week, we noted the actor's investing tips from a GQ profile, including energy company InterOil:
"Look at IOC. IOC's momentum is major and it will surprise to the upside."

Hey, plenty of people are betting on oil, so why not?

But there's a back-story to the very specific pick. As felon-turned-financial blogger Sam Antar and others have implied, the apparent reason for choosing IOC at virtual random is Shia's relationship with brokerage John Thomas Financial.

As part of his Wall Street preparation, LaBeouf spent time at John Thomas in New York to understand high finance. So good was the training, LaBeouf says, he turned a $20,000 investment into $489,000 with the help of advisers at John Thomas and others.

It's not clear if any of that investment was in IOC, which is still up nearly 150% over the past 12 months despite slipping recently. But at least knowledge and interest in the company appears to come from LaBeouf's mentors at the upstart Wall Street brokerage.

John Thomas' Wayne Kaufman has called IOC their "favorite energy stock," and the financial brokerage has a prior investment banking relationship with InterOil, via Clarion Finanz, according to Antar. (Antar has accused InterOil, John Thomas, and Clarion of a stock market manipulation scheme; in response, Thomas Belesis, CEO of John Thomas, calls Antar a liar and an "idiot.")
Read more here.

March 26, 2010: William K. Wolfrum Chronicles by William K. Wolfrum

So who do you get your stock tips from, these days? How about 23-year-old actor Shia Labeouf? Yes, in studying for his role in the upcoming film “Wall Street 2,” Labeouf spent time at John Thomas Financial. At John Thomas, InterOil (IOC) is their “favorite energy stock.”

So guess which stock LaBeouf is praising?

“IOC’s momentum is major, and it will surprise to the upside,” texted LeBeouf to a GQ writer.
That InterOil is beset with controversy, lawsuits, and a distinct inability to find proven reserves of oil or natural gas doesn’t seem to dissuade the young actor.

Of course, maybe he could have researched a little better. From Sam Antar’s White Collar Fraud:
When a company like InterOil starts on a corrupt foundation, everything that follows continues to be corrupt. In many ways, Phil Mulacek’s transgressions against investors remind me of me, back in my criminal days at Crazy Eddie. We both exploited the hopes of our investors with “spin and lies.” During its entire existence, InterOil has issued an endless string of press releases hyping its future prospects and selling hope to gullible investors. Yet, after almost a decade, InterOil has no proven commercially exploitable reserves to show for it.
Read Antar’s lengthy look at InterOil here for more, and see for yourself if John Thomas has found a willing patsy to pump InterOil stock.
Read more here.

March 26, 2010: Going Concern - Quote of the Day: Sam Antar Is Ready to Rumble by Caleb Newquist

I challenge John Thomas Financial CEO Thomas Belesis to a match on the Jerry Springer show. To even the odds, he can bring Overstock.com CEO Patrick Byrne. Two crooks versus a convicted felon born in Brooklyn. They can bring actor turned stock pumper Shia LaBeouf for added muscle, too.
~ Sam Antar, reacting to Thomas Belesis calling him an idiot after Antar suggested that Shia might be able to shed some light on the goings-on at John Thomas Financial involving InterOil. And if you forgot, Sam and Patrick have a bit of a history.
Read more here.

March 28, 2010: Jr Deputy Accountant - What I'm Beating TLP With This Week by Adrienne Gonzalez
Is InterOil Built on a Foundation of Fraud? InterOil better look out, you don't want Sam Antar on your ass (I'm not scared, he's afraid of me and I'm training him for his next bout).
Read more here.

Stay tuned

This blog will continue to expose corporate misconduct in real time, just like my successful battle against Overstock.com CEO Patrick Byrne, another masquarading stock market reformer, who is now under investigation by the Securities and Exchange Commission, as a result of reporting in this blog. Recently, Overstock.com (NASDAQ: OSTK) was forced to restate its financial reports for the third time in three years, after this blog exposed GAAP and SEC disclosure violations by the company.

Phil Mulacek and Thomas Belesis need to get ready for a very long forensic accounting colonoscopy, like Overstock.com and Patrick Byrne. Pricewaterhouse Coopers (PwC) was Overstock.com's former auditors and every single financial reported audited by them turned out to be wrong because of GAAP and SEC disclosure violations. Apparently, PwC ignored management integrity issues at Overstock.com. It turns out that PwC is InterOil's auditors, too.

Shia LaBeouf

Shia LaBeouf should not let fame get to his head, unless he wants to infamously end up like Barry Minkow and me, back in the day. LaBeouf is probably a good young man and is surely a great actor with a promising career. He should stick to his acting talent instead of trying to internalize his roles in real life. Wall Street is a dirty filthly cesspool that is polluted by the likes of John Thomas Financial CEO Thomas Belesis, who uses his current claimed efforts to improve Wall Street’s image as a "wall of false integrity."

To be continued.....

Written by:

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 any InterOil securities, long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon, turned fraud fighter Barry Minkow) in researching InterOil. Barry Minkow and William Lobdell (iBusiness Reporting) have publicly stated that they have held short positions in InterOil securities.

I do not own any Overstock.com securities short or long. My research on Overstock.com 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. Analyzing Overstock.com's financial reporting is a forensic accountant's wet dream and Patrick Byrne is about to become the SEC's new orgasm.

Friday, March 26, 2010

Is InterOil Built on a Foundation of Fraud?

A report by former LA Times reporter William Lobdell in iBusiness Reporting and an accompanying press release by Fraud Discovery Institute provide disturbing details of  fraud allegations made in an ongoing court case by the original investors in InterOil (NYSE: IOC) against company CEO Phil Mulacek. The court documents obtained by Lobdell provide an inside look into Mulecek's desperate court room antics to avoid responsibility for his actions which were later scolded by the Judge in the case. In addition, filings with the Canadian Securities Commissions show that InterOil insiders dumped about $10 million of stock in recent weeks.

iBusiness Reporting is a division of Fraud Discovery Institute (co-founded by convicted felon, now fraud fighter Barry Minkow). Both Lobdell and Minkow publicly acknowledge holding short positions in InterOil securities. Read Lobdell's entire report here.

Fraud Discovery's self explanatory press release is re-printed below. Additional information and my commentary follow it:
Is InterOil Corporation Built On A Foundation Of Fraud, Asks FDI's Barry MinkowLawsuit, set for trial in May, alleges InterOil (NYSE:IOC) CEO Phil Mulacek used a variety of illegal schemes to enrich himself and defraud original investors.

For Immediate Release

SAN DIEGO/EWORLDWIRE/March 26, 2010 --- A potentially massive lawsuit by many of InterOil Corporation's (NYSE: IOC) original investors, who are seeking up to $1.3 billion in damages, worried company CEO Phil E. Mulacek so much that a certain company he controls filed a bad-faith bankruptcy in an apparent attempt to derail litigation set for trial this May. In fact, federal Judge Marvin Isgur said that Mulacek's credibility "diminished" by building a key argument in bankruptcy papers upon a lie.

In a special report released today by iBusiness Reporting ('http://www.ibizreporting.com') - a division of the Fraud Discovery Institute Inc., former Los Angeles Times journalist William Lobdell details stunning allegations made by about 20 original investors in what is now InterOil. Among the claims: InterOil CEO Phil Mulacek forged documents, secretly created a shadowy Bahamian company, and ignored "crippling conflicts of interest" in order to enrich family, friends and himself.

So desperate was Mulacek to evade the consequences of his actions relating to a case going to trial this May, that he filed bankruptcy for a company he controls in what seems an attempt to derail the lawsuit, which is asking up to $1.3 billion in derivative or stockholder claims.

In one candid admission, Mulacek and his attorneys testified that even a $50 million judgment for the plaintiffs would be "devastating" to InterOil. The bankruptcy testimony also showed the precarious financial condition of InterOil, with $60 million in cash and massive amounts of money needed to drill wells ($1 billion), construction of a pipeline ($900 million) and the building and construction of a liquefied natural gas (LNG) plant ($5-7 billion).

To date, InterOil hasn't found any commercial oil or gas.

Federal Judge Marvin Isgur ruled that Mulacek had filed the bankruptcy in bad faith, and the executive's credibility was "diminished" by building a key argument for bankruptcy upon a lie.

"It's hard to know where to start - there's so much in this special report," said Barry Minkow, cofounder of the Fraud Discovery Institute (FDI). "The most serious of these claims is the most obvious - the very foundation on which InterOil was built is a fraud based on the intentional inflation of an asset costing $250,000 which allowed InterOil to refine unleaded gasoline. It was reported to investors by Mulacek to have cost $15 million.

"It is the very artificial inflation of assets that is at the core of the InterOil scheme. Mulacek simply added zeroes in the current scheme - instead of a refinery component not being worth $15 million, he now touts oil and natural gas exploration sites in PNG as being the largest find in the world, yet to date, not one drop of commercially viable reserves has been sold by the company."

The lawsuit also alleges the deception started with one of the company's first assets and that scheme gave an offshore company secretly controlled by Mulacek 5.1 million shares of InterOil - 25 percent of the company's stock at the time - in exchange for nothing.

"This would be nearly unbelievable if this was any company other than InterOil," Minkow said. "All you get is hype-feeding-hope, and criminals know people live on hope and exploit that hope with spin and lies. The company lied about fees paid to Clarion and John Thomas. The company hyped with an endless string of press releases, and yet there are still no commercial reserves and no partner."

Because this information can be found in court documents in the public record and available on IBizReporting.com at 'http://www.ibizreporting.com', it cannot be refuted "no matter how many diversion names supporters call me or other detractors," added Minkow.

For more information, call the Fraud Discovery Institute at 1-888-300-8307, e-mail info@frauddiscovery.net, or visit FraudDiscovery.net at 'http://www.frauddiscovery.net', or IBizReporting.com at 'http://www.ibizreporting.com'.
According to Lobdell's report, a couple of days before filing the filing of the "bad-faith bankruptcy" which the Judge later tossed out, Mulacek "dumped nearly $1.5 million worth of InterOil stock...."

Interoil's lack of full and transparent disclosure

Lobdell goes on to document how InterOil has not yet to come clean with investors about the full potential financial impact of the litigation on the company by lowballing its estimate of potential damages:

InterOil’s 2009 annual report released earlier this month reported that a favorable judgment from the plaintiffs in the Peters case could result in damages exceeding $125 million. The report doesn’t mention the $275 million to $1.3 billion range that the plaintiffs of the Peters case are seeking in damages--figures Mulacek's attorneys used in the bankruptcy proceedings.
Insiders dump shares

While keeping shareholders in the dark, InterOil insiders are dumping huge amounts of stock. According to Lobdell:

Five directors or officers have dumped nearly $10 million worth of stock, according to documents filed with the Canadian Securities Commissions.

On March 5, Director Edward Nicholas Speal sold 30,000 shares at 63.8593 for $1,915,779.
On March 10, Director Gaylen J. Byker sold 30,000 shares at $69.25 for $2,077,500.
On March 16, President and COO William Jasper sold 30,000 shares at $67.47 for $2,024,100.
On March 17, Director Roger Grundy sold 25,000 shares at $66.39 for $1,659,750.
On March 18, Director Christian Vinson sold 30,000 shares at $68.50 for $2,055,000.
When a company like InterOil starts on a corrupt foundation, everything that follows continues to be corrupt. In many ways, Phil Mulacek's transgressions against investors remind me of me, back in my criminal days at Crazy Eddie. We both exploited the hopes of our investors with "spin and lies." During its entire existence, InterOil has issued an endless string of press releases hyping its future prospects and selling hope to gullible investors. Yet, after almost a decade, InterOil has no proven commercially exploitable reserves to show for it.

Other schemes

In my blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme," I provided detailed evidence of a stock market manipulation scheme involving InterOil, John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta. I believe that they conspired to raise the stock price of InterOil's shares to force the conversion of certain outstanding debentures to common stock.

InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a private placement $95 million convertible debt offering. However, documents submitted in another court case reveal that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees.

Those same court documents show how InterOil used Clarion as a buffer to conceal John Thomas Financial's and banned stock promoter Carl Caserta's role in the debt offering. About a year earlier, InterOil told the New York Times that it was not doing business with Caserta.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from his company's prior investment banking relationship with InterOil. Afterwards, John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil. Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

Actor Shia Labeouf uses his celebrity status to pump InterOil

In a bizaare twist, actor Shia LaBeouf has joined the InterOil stock pumping bandwagon. Labeouf trained at John Thomas Financial to study for his role in the upcoming motion picture "Wall Street 2: Money Never Sleeps." According to a recent New York Post article:

After preparing for his turn as a hedge-fund trader by visiting trading floors of small brokerage houses, LaBeouf in the April issue of GQ talked up the stock of an oil and natural gas exploration company that has yet to produce any of either.

"IOC's momentum is major, and it will surprise to the upside," LaBeouf said in a text message to the GQ article's author, Adam Sachs, using the trader lingo he apparently picked up while prepping for the film.

The 23-year-old star of the "Transformers" franchise was referring to InterOil, a Canadian firm with the New York Stock Exchange ticker symbol IOC that says it's searching for natural gas and oil in Papua New Guinea.

However, after seven years of exploration and drilling, InterOil has yet to produce any proven commercial oil or gas reserves.

Nevertheless, InterOil's stock is up an astounding 385 percent since the start of 2009 -- a feat critics attribute to InterOil's flurry.
Shia LaBeouf learned about InterOil from John Thomas Financial and is using his celebrity status to pump InterOil stock. In my last blog post, I suggested that:

It would be interesting to find out what he knew, when he knew it, and if he traded any InterOil shares. Maybe he can provide details on how John Thomas Financial pushed InterOil shares on it's customers?
Shia La Pump blogger Joshua Brown was roundly criticized Shia Labeouf's antics:

This Shia LaBeouf kid is apparently trying his best to make sure that any enthusiasm for the Wall Street sequel is completely drained by the time it hits theaters.

With every puff piece on how he's shown himself a 2000% return in his personal stock trading account, more eyes roll and more sighs of disappointment can be heard amongst the film's would-be core audience - Wall Street itself.

The latest ridiculousness involves Shia's pumping of an experimental oil stock that has no earnings from oil exploration or production of any kind as yet...
[Snip]

Kid, can you just talk about your movie and stop digging your credibility hole any deeper?  You seem like a nice guy and no one is rooting against you.  When you read this stuff you're saying five years from now, you're going to cringe in embarrassment like the rest of us are doing as we speak.

Try to be a little more Sheen-like circa 1987...in other words, just be cool.
Economic Policy Journal blogger Robert Wenzel suggested:

This the SEC may look into. A naive actor is red meat for the SEC, whether as witness or participant, unlike other potential cases.
Conclusion

If Phil Mulacek can screw his original seed investors and his company has shown its capability to file false and misleading reports with the SEC, he is clearly capable of screwing anyone else as he and his cronies continue to sell hope to gullible investors.

Written by:

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 any InterOil securities, long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon, turned fraud fighter Barry Minkow) in researching InterOil.

Thursday, March 25, 2010

Can Shia LaBeouf Help Shed Light on a Stock Market Manipulation Scheme Involving InterOil and John Thomas Financial?

Oliver Stone film starring Michael Douglas and Shia Labeouf
Updated:

In July 2009, this blog provided detailed evidence of a stock market manipulation scheme involving InterOil (NYSE: IOC), John Thomas Financial, Clarion Finanz AG, and banned stock promoter Carl Caserta. I believe that they conspired to raise the stock price of InterOil's shares to force the conversion of certain outstanding debentures to common stock.

Now it turns out that actor Shia LaBeouf trained at John Thomas Financial to study for his role in the upcoming motion picture "Wall Street 2: Money Never Sleeps." LaBeouf claims that he turned an initial investment of $20,000 into $489,000 while training for his role in the movie. According to an article in today's New York Post by Kaja Whitehouse, LaBeouf is pumping InterOil shares, too:

After preparing for his turn as a hedge-fund trader by visiting trading floors of small brokerage houses, LaBeouf in the April issue of GQ talked up the stock of an oil and natural gas exploration company that has yet to produce any of either.

"IOC's momentum is major, and it will surprise to the upside," LaBeouf said in a text message to the GQ article's author, Adam Sachs, using the trader lingo he apparently picked up while prepping for the film.

The 23-year-old star of the "Transformers" franchise was referring to InterOil, a Canadian firm with the New York Stock Exchange ticker symbol IOC that says it's searching for natural gas and oil in Papua New Guinea.

However, after seven years of exploration and drilling, InterOil has yet to produce any proven commercial oil or gas reserves.

Nevertheless, InterOil's stock is up an astounding 385 percent since the start of 2009 -- a feat critics attribute to InterOil's flurry of uplifting press releases about its drilling and exploration plans.

According to the New York Post:

CAA, LaBeouf's talent agency, didn't return a request for the actor to comment."
Apparently, Shia LeBeouf learned about InterOil from John Thomas Financial. It would be interesting to find out what he knew, when he knew it, and if he traded any InterOil shares. Maybe he can provide details on how John Thomas Financial  pushed InterOil  shares on it's customers? Afterall, LeBeouf learned about how the underbelly of Wall Street operates from John Thomas Financial and other firms to prepare for his leading role in the movie.

For more details, please read my full blog post entitled, "InterOil, John Thomas Financial, and Clarion Finanz: Anatomy of a Stock Market Manipulation Scheme." In that blog post, I documented how InterOil filed a false report with the Securities and Exchange Commission claiming that the company paid no fees for a $95 million convertible debt offering. However, documents submitted in a court case show that Clarion Finanz (a major shareholder of InterOil) had in fact received $5.7 million in fees.

Those same court documents show that InterOil concealed John Thomas Financial's and banned stock promoter Carl Caserta's role in the debt offering. About a year earlier, InterOil told the New York Times that it was not doing business with Caserta.

That deception enabled John Thomas Financial analyst Wayne Kaufman to appear on CNBC and recommend InterOil's stock without accurately disclosing his company's conflict of interest from their prior investment banking relationship with InterOil. John Thomas Financial heavily promoted Wayne Kaufman's CNBC appearance to pump InterOil stock to its customers without disclosing its prior investment banking relationship with InterOil.

Over the next couple of weeks, InterOil shares rose dramatically and the company was able to force the conversion of its debt to equity.

My personal friend convicted felon, turned fraud fighter, Barry Minkow (see disclosure below) is a critic of InterOil's financial disclosures. Additional information on Interoil can be found in Fraud Discovery Institute's InterNoOil website and iBusiness Reporting blog.

Written by:

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 any InterOil share long or short. However, I assisted Fraud Discovery Institute (co-founded by convicted felon turned, fraud fighter, Barry Minkow) in researching InterOil. In the past, Minkow publicly disclosed being short on InterOil securities.

Wednesday, March 17, 2010

Overstock.com Delays Filing 10-K, Reports Even More GAAP Violations, While Patrick Byrne Hides

CEO Patrick M. Byrne intoxicated
Yesterday, Overstock.com (NASDAQ: OSTK) filed a Notification of Late Filing (Form 12b-25) for its 2009 annual 10-K report at around 4:23 PM (Eastern) or about 37 minutes before the drop-dead deadline when the 10-K report was due to be filed.

The Notification of Late Filing identifies new previously undisclosed material violations of Generally Accepted Accounting Principles (GAAP) and other Securities and Exchange Commission disclosure rules. The company needs more time to determine the accounting impact of certain material GAAP violations first acknowledged by the company on January 29 and new GAAP violations reported by the company in its "Notification of Late Filing."

Apparently, KPMG who was hired as Overstock.com's new auditors after they fired Grant Thornton, has finally learned what I've known for a very long time: The deeper you dig into Overstock.com's financial reporting, the more black holes (GAAP and SEC disclosure violations) you will find.

Newest Found GAAP Violations

As I discussed above, Overstock.com's Notification of Late Filing includes both previously disclosed and newly discovered GAAP violations. Those new GAAP violations were highlighted by me in the text below in bold and italic print:
As announced on January 29, 2010, Overstock.com, Inc. (the “Company”) is restating its previously issued financial statements for the fiscal year ended December 31, 2008 (including the interim periods within that fiscal year), and the quarterly periods ended March 31, 2009, June 30, 2009 and September 30, 2009 to correct errors related to:

Operational errors and the accounting for amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from the vendor.  Once discovered the Company applied “gain contingency” accounting for the recovery of such amounts, which was an inappropriate accounting treatment.

The accounting for certain of the Company’s share-based compensation plans. Specifically, the Company incorrectly amortized the expense related to restricted stock units based on the actual three year vesting schedule rather than a three year straight line amortization schedule and applied an outdated forfeiture rate in calculating share-base compensation expense under the plans.

Identification of amounts related to customer refunds and credits not properly included in the Company’s monthly reconciliation of customer refunds and credits to third party statements to determine the completeness and accuracy of returns expense.

The accounting for certain external audit fees on a ratable basis, instead of as incurred.
The recognition of co-branded credit card bounty revenue and promotion expense on an immediate recognition basis, instead of over time.

The late recognition of a reduction in the restructuring accrual for a new sublease and the recognition of interest expense related to the accretion of the restructuring accrual.

Other miscellaneous corrections and reclassifications, none of which were material either individually or in the aggregate.

Overstock.com nonchalantly lumped in its latest GAAP violations with other GAAP violations previously disclosed by the company on January 29, rather than separately disclosing them. Those newly identified GAAP violations add to a long laundry list of other violations some of which are discussed in more detail below. Because I have exposed various financial reporting violations by Overstock.com, Patrick Byrne ridiculously considers me to be an "anti-Overstock.com" blogger.

SEC Regulation G Violations

In various blog posts during 2007 and 2008, I exposed how Overstock.com violated SEC Regulation G by using an improper EBITDA calculation to materially overstate its financial performance from Q2 2007 to Q2 2008. When I confronted management about its EBITDA violations, Patrick Byrne, Jonathan Johnson, and David Chidester lied about the company's compliance with SEC Regulation G during quarterly conference calls and Byrne vilified me for even raising the issue.

In Q3 2008, Overstock.com finally corrected its improper EBITDA calculation by calling it "adjusted EBITDA" when it restated financial reports and amended its filings with the SEC to correct certain GAAP violations involving customer refund and credit errors described below. However, the company improperly failed to disclose in its amended SEC filings that the reason for changing its EBITDA calculation was because of violations of Regulation G (Details from my blog here and from Lee Webb's Stockwatch article here).

Overstock.com's Illegal "Cookie Jar" Reserves

In October 2008, Overstock.com restated its financial reports from Q1 2003 to Q3 2008 to correct certain customer refund and credit errors.

In February 2009, I correctly reported in my blog that 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.

Overstock.com should have gone back and corrected or restated its financial reports to reflect income already earned from offsetting costs and reimbursements due from its fulfillment partners, less a reasonable estimate for uncollectable amounts (See SFAS No. 154 and SFAS No 5 paragraph 1, 2, 8 and 23).

Instead, Overstock.com improperly deferred income that it earned but underbilled its fulfillment partners during prior reporting periods (Q3 2008 and before) to by moving such income to future reporting periods (Q4 2008, Q1 2009, Q2 2009, and Q3 2009). In other words, Overstock.com took income that should have been reported in prior reporting periods (Q3 2008 and before) and moved it to future reporting periods (Q4 2008 and later) to materially overstate its financial performance in those later reporting periods.

In effect, Overstock.com violated GAAP by creating an illegal cookie jar reserve to materially inflate future earnings or reduce future losses from Q4 2008 to Q3 2009.

Overstock.com ridiculously claimed that the collection of the entire amount of its underbillings (every single penny) “was not assured” and instead falsely claimed that a "gain contingency" existed rather than make a reasonable estimate of uncollectable amounts as required under SFAS No. 5. Therefore, Overstock.com improperly recognized income from underbilled fulfillment partners as amounts due to the company were collected on a non-GAAP cash basis, rather when they were earned under accrual accounting or GAAP. (More details can be found in my Open Letter to the Securities and Exchange Commission here).

Starting in February 2009, I notified both Overstock.com and the SEC about the company's illegal "cookie jar" reserve and its phony "gain contingency." Overstock.com CEO Patrick Byrne responded by claiming that:

Antar's ramblings are gibberish. Show them to any accountant and they will confirm. He has no clue what he is talking about.

Instead of properly restating its financial reports to correct its intentional breach of GAAP and other SEC disclosure rules, Overstock.com CEO Patrick Byrne continued to respond by orchestrating a massive corporate sponsored retaliation campaign against me and other critics who agreed with my findings. In addition, Patrick Byrne, company President Jonathan Johnson, former CFO David Chidester, and others blatantly lied to and misled shareholders during various conference calls and vilified me in an attempt to cover up their financial reporting manipulation schemes.

In March 2009, Overstock.com fired PricewaterhouseCoopers as its auditors and hired Grant Thornton to replace them.

In September 2009, the SEC Enforcement Division took a very rare step and re-opened a previously closed probe of financial reporting irregularities at Overstock.com. A few weeks later, the SEC Division of Corporation Finance started a parallel probe of the company's financial reporting irregularities.

In October 2009, the SEC Division of Corporation Finance discovered that Overstock.com overpaid a fulfillment partner $785,000 during 2008. The company recovered that overpayment in Q1 2009 and improperly reported the overpayment recovery as income in that same quarter, rather than properly restate its 2008 financial reports to correct that error. Overstock.com improperly concealed the recovery of the overpayment by including that amount in recoveries from underbilled fulfillment partners in Q1 2009 instead of separately disclosing the overpayment recovery in its financial reports.

Grant Thornton claimed that it did not know about the 2008 overpayment and Q1 2009 recovery from the fulfillment partner until October 2009. After learning about the overpayment, Grant Thornton told Overstock.com that it must restate its prior financial reports to correct that error to comply with GAAP.

On November 13, 2009, Overstock.com fired and vilified Grant Thornton, rather than restate its financial reports and later filed an "unreviewed" Q3 2009 10-Q that finally disclosed the overpayment to the fulfillment partner. In this case too, Overstock.com improperly claimed that a "gain contingency" existed as justification for not restating its financial reports to correct the overpayment error.

On December 28, 2009, KPMG replaced Grant Thornton as Overstock.com's auditors.

My Vindication

On January 29, 2010 Overstock.com finally ate crow and admitted that its accounting for recoveries from both underbilled and overpaid fulfillment partners was "inappropriate" and that no gain contingency existed, as I previously reported in my blog. The company reported that its financial reports from Q1 2008 to Q3 2009 "should no longer be relied upon" and that it will restate its financial reports to correct its GAAP violations (More details here.)

Simply said, I was right and Overstock.com was wrong. I was able to identify material GAAP and SEC disclosure violations that Overstock.com's management, its audit committee, and its former auditors at PricewaterhouseCoopers were unable and unwilling to identify and correct. As I detailed above, KPMG has  found even more material GAAP violations as nonchalantly disclosed in its "Notification of Late Filing."

Patrick Byrne in Hiding

I recently sent CEO Patrick Byrne and audit committee member Joseph J. Tabacco the following emails below requesting a full apology from the company and the removal of defamatory remarks from Overstock.com's website and its related party Deep Capture LLC website:

From: Sam E. Antar
Sent: Monday, March 08, 2010 11:02 PM
To: Patrick Byrne
Subject: Overstock.com Restatement
Importance: High

Hi Patrick:

Will you finally admit that I was correct when I reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?
You owe me a public apology.

Regards,

Sam

I received no reponse from Patrick Byrne.

A day later, I tried to get a response from him again. This time I cc'd Audit Committee member Joseph J. Tabacco Jr, certain persons from the SEC, and certain journalists. At least Tabacco and the others sent me "read receipts" acknowledging that they received and read my email. However, Byrne failed to respond to me and stayed in hiding.


From: Sam E. Antar
Sent: Tuesday, March 09, 2010 2:12 PM
To: Patrick Byrne
Cc: Joseph J. Tabacco Jr. (Overstock.com Audit Committee), persons from SEC, and certain journalists
Subject: FW: Overstock.com Restatement
Importance: High
 Having not received a response from last night’s email (see below), I am asking for a response to the following question I asked you in that email:

Will you finally admit that I was correct when I reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement?
 In addition, I have the following questions:

Will you finally admit that I was correct when I reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures?

Will you publicly admit that I was right about Overstock.com’s violations of GAAP and other SEC disclosure rules (such as Regulation G)?

Will you publicly admit that you were wrong when you claimed that the company was complying with GAAP and other SEC disclosure rules, while at the same time you were publicly defaming me and other critics?

Will the company admit that I notified audit committee member Joseph J. Tabacco about Overstock.com’s GAAP and SEC disclosure violations (such as Regulation G) and continued to issue improper financial reports until it was forced to make corrections in its financial reporting?

As the CEO of Overstock.com you owe me a public apology.

Respectfully,

Sam E. Antar
The next day, I sent an email directly to Joseph J. Tabacco Jr. and cc'd Patrick Byrne, certain persons from the SEC, and certain journalists. While Tabacco sent me a "read receipt" acknowledging my email, he failed to respond to me. Byrne continued to duck the issues, too.

From: Sam E. Antar [mailto:sam@whitecollarfraud.com]
Sent: Saturday, March 13, 2010 3:25 PM
To: Joseph J. Tabacco Jr. (Overstock.com Audit Committee)
Cc: Patrick Byrne, persons from the Securities and Exchange Commission, and certain journalists
Subject: Overstock.com Financial Reporting Violations
Importance: High


To Joseph J. Tabacco (Overstock.com Audit Committee Member):

On Overstock.com’s website, there is a page labeled “Naked Short Selling” and on that page is a link labeled “November 2008 – Utah Attorney General Mark Shurtleff comments on anti-Overstock.com blogger Sam Antar.” Here is the link: http://www.overstock.com/naked-short-selling.html.

First off, I have never been involved any illegal naked short selling.

Second, how can Overstock.com label me as an “anti-Overstock.com blogger” when?:

I correctly reported in my blog that Overstock.com used an improper EBITDA from Q2 2007 to Q2 2008 in violation of SEC Regulation G to materially inflate its financial performance, in light of its later amended disclosures.

I correctly reported in my blog that Overstock.com violated GAAP by using a phony gain contingency in light of the company’s recently announced restatement.

The company has the nerve to falsely imply that I am naked short selling Overstock.com and am an “anti-Overstock.com blogger” even though I correctly exposed financial reporting violations by the company as cited above.

Simply said, Overstock.com, its audit committee, its management, and its auditors were wrong and I was right about SEC disclosure violations such as Regulation G and the company’s GAAP violation that led to its recently announced restatement.

I did the job that Overstock.com and its auditors were unable and unwilling to do as evidenced by its delayed response in correcting financial reporting violations that were reported in my blog and its vicious campaign to smear me and other critics rather than immediately correct its financial reporting violations.
Third, please note Utah Attorney General Mark Shurtleff received $5,000 in cash from Overstock.com a few days prior to writing his defamatory letter about me. Both Chief Deputy Attorney General Kirk Torgensen and Deputy Attorney General Richard Hamp acknowledged that Shurtleff’s claims about me were false in various tape recorded conversations cited in my blog.

For additional information, read my blog post entitled, “Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne Pays Utah Attorney General Mark Shurtleff to Defame a Blogger.” Link here: http://whitecollarfraud.blogspot.com/2008/08/overstockcom-nasdaq-ostk-ceo-patrick.html,

Therefore, I respectfully request a full public apology from Overstock.com and that the company remove all false and defamatory references to me in its web site and its Deep Capture web site immediately.

Respectfully,

Sam E. Antar
I have no doubt that Overstock.com's management and audit committee will continue their violate fiduciary duties to shareholders while vilifying any critic who uncovers any financial reporting irregularities and other misconduct by the company.

At least KPMG has uncovered some previously undisclosed material GAAP and SEC disclosure violations by the company. However, it's only the tip of the iceberg. All I can say for now, is that newly discovered documentation of misconduct and financial reporting irregularities by Overstock.com is in the right hands.

At this time, I will provide no closure for Patrick Byrne or KPMG about what I already know and what the company has knowingly failed to disclose to its auditors and investors. They'll have to keep guessing while Patrick Byrne remains under the delusion that he can run and hide from accountability for his actions.

Written by,

Sam E. Antar

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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 Overstock.com securities short or long. My research on Overstock.com 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. Analyzing Overstock.com's financial reporting is a forensic accountant's wet dream and Patrick Byrne is about to become the SEC's new orgasm.

Tuesday, March 16, 2010

Indicted Former Democratic Assemblyman Louis Manzo Would be Wise to Stop Blabbing and Simply Shut Up

Perhaps the smartest thing an elected politician needs to learn is when to simply shut up and stop blabbing, especially if that politician is under federal indictment and awaiting trial. Indicted former Democratic Assemblyman and unsuccessful mayoral candidate for Jersey City Louis Manzo does not seem to understand that fighting a criminal indictment is not a political campaign. There is a saying, "The cover up is always more risky than the crime" because public statements made in defense of allegations to a crime, usually land that person in deeper trouble with prosecutors and investigators and rarely help their chances for an acquittal.
Indicted former Assemblyman Louis Manzo holds a press conference


Whether innocent or guilty, the best course of action for any indicted person is to save their arguments for the Judge and jury. A simple straight forward statement saying, "In America there is a presumption of innocence and I look forward to contesting those charges at trial" is usually the wisest course of action for any Defendant awaiting a criminal trial.

Louis Manzo held a press conference and angrily attacked former US Attorney, now New Jersey Governor, Chistopher Christie accusing him of orchestrating a massive federal probe into corruption and money laundering to help his political campaign to become Governor of New Jersey. A spokesman for Governor Christie called Manzo's accusations "deluded."

Massive federal sting operation

Last summer, Louis Manzo and his brother Ronald was arrested and charged with accepting $27,500 in illegal campaign contributions from undercover government informant Solomon Dwek, who posed as a crooked developer trying to gain building approvals for his projects.

In May 2006, real estate developer Solomon Dwek was arrested for bank fraud after he bounced a $25 million on PNC bank and tried to deposit another rubber $25 million check with the bank. Dwek agreed to cooperate with the FBI and wore a wire as a confidential government informant in its wide ranging investigation of political corruption in New Jersey and money laundering involving religious charities and New York and New Jersey.

In July 2009, 44 people including 3 New Jersey Mayors, about two dozen other politicians including members of their staffs, several government employees, and 5 Rabbis from the Brooklyn, New York and Deal, New Jersey Syrian Jewish Community were arrested as part of the two year federal massive sting operation.

In February 2010, former Jersey Deputy Mayor Leona Beldini was convicted of two felonies in the first trial of a Jersey public official as a result of the federal probe.

Other Defendants are awaiting trial, some Defendants have already pleaded guilty, and according to sources, other Defendants are quietly cooperating with the FBI in its expanding probe into corruption, money laundering, and tax evasion.

Louis Manzo attacks FBI and federal prosecutors

According to an article in the Star-Ledger by Joe Ryan:

So there he was today, standing before a bank of microphones at a news conference he called in Jersey City to assail the federal authorities who charged him.

Manzo accused the FBI and federal prosecutors in Newark of orchestrating last summer’s sprawling bribery and money-laundering operation to catapult former U.S. Attorney Chris Christie, a Republican, to the governor’s office. As proof, Manzo cited contributions from staffers at the U.S. Attorney’s office to Christie’s campaign. And he cited the dozen-plus former federal prosecutors who have since joined Christie’s administration.

"I think it’s obvious when you connect the dots that there was an attempt to use a government sting as an effort to help Christie’s election," Manzo said.

A spokesman for the governor said Manzo’s accusations were "deluded."
"He appears to be just another official in New Jersey charged with corruption who wants to divert attention from his own conduct," said Michael Drewniak, a former spokesman for the U.S. Attorney’s Office in Newark who now works for Christie. "Maybe at his next press event, he could go into full detail about his conduct as described in the charges."
Christie’s successor, U.S. Attorney Paul J. Fishman, said Manzo "can rehash whatever allegations he wants. But this office stands behind the indictment, and the charges against him will be resolved in court."

A spokesman for the FBI declined to comment.

[Snip]

"This is an assault on the Constitution," Manzo said.

Manzo is not the first defendant to accuse federal prosecutors of trying to aide Christie’s election. Former Democratic state Sen. Joseph Coniglio of Bergen County unsuccessfully argued during his corruption trial last year that he was the victim of a political prosecution. A federal judge barred former Jersey City Deputy Mayor Leona Beldini from using a similar tact at her trial in February.

Manzo is, however, the first defendant in recent memory to stage a news conference to trumpet his accusation. His lawyer, John David Lynch, did not attend the event. Reached by phone afterward, he said normally he would advise against such public statements. But Manzo, he said, felt generally aggrieved.

"He is an intelligent and responsible adult," Lynch said. "I am not a puppet master."

Perhaps John David Lynch, Manzo's attorney can advise his client that you rarely win a federal criminal corruption case on emotion and blabbing about being victimized by government prosecutors. The wisest way to win such a criminal case is by unemotionally and methodically attacking the evidence and raising "reasonable doubt" as to guilt with a jury.

Public displays of anger by Defendants only serve to energize prosecutors and criminal investigators to "cross every t and dot every i" and otherwise double-up in their efforts to successfully win their cases. Keeping a low profile usually draws less attention from the feds.

Louis Manzo's indictment cites several damaging conversations involving himself, his brother, and government informant Solomon Dwek caught on tape discussing alleged illegal payments in return for helping Dwek gain approval for his building projects. Apparently, Manzo feels "boxed in" and is unable to refute the overwhelming evidence cited in his indictment and feels his only course of action is to make angry attacks on the FBI and US Attorney's office.

Louis Manzo seems like another criminal Defendant who is "living on hope." Manzo should not treat his upcoming trial like a political campaign. At least politicians can walk away after losing a political campaign to fight another day, unlike losing a criminal trial and landing themselve's in the slammer.

Written by:

Sam E. Antar

Related blog post:

First Jury Trial in Federal Corruption Probe Based on Informant Solomon Dwek Convicts Beldini: Are Some Defendants Living on Hope?

Previous media coverage of my comments on the ongoing an expanding federal investigation into political corruption and money laundering can be found here:

July 22, 2009: Jewish Week - UPDATED: Syrian Jewish Insider: “Not Surprised” by Arrest of Prominent Rabbis in Breaking FBI Investigation

July 24, 2009: New York Times - Brooklyn Blogs Buzzing With Talk About Rabbis by Paul Vitello

August 17, 2009: Atlantic City Press - Crazy Eddie's cousin stars in Republican hearing on corruption by Derek Harper

August 3, 2009: Bloomberg News - Money-Laundering Rabbi Case in Los Angeles Echoes N.J. Scandal by Linda Sandler and Voreacos

August 26, 2009: Jewish Daily Forward - ‘Crazy’ Eddie’s Cousin, a Former Fraudster, Speaks Out on Syrian ‘Subculture of Crime’ by Rebecca Dube

Disclosure:

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. I committed my crimes, simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney'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.

After two years of stonewalling government investigations, class action litigations brought by our victims, and lying to my former attorneys, I hired criminal attorney Anthony Mautone and civil attorney Jonathan D. Warner. They correctly advised me to cooperate with the government and the victims of my crimes, rather than risk a trial.

As a result of Mautone's and Warner's wise advice, I was sentenced to only six months of house arrest, 1,200 hours of community service, and paid some nominal fines and disgorgement. In addition, in my settlement with the victims of my crimes, I avoided all civil liability due to my cooperation in helping them recover over $100 million dollars in losses.

Today, I teach the Justice Department, Federal Bureau of Investigation, Internal Revenue Service, and other federal, state, and local government agencies about white collar crime, completely free of charge. I hope it gets me into heaven, but I doubt that I will ever get there because my crimes are unforgivable.