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Showing posts from June, 2010

Open Letter to the Securities and Exchange Commission Part 9: Overstock.com's Excuses Simply Don't Add Up

To SEC Chairperson Mary Schapiro:

In August 2009, I wrote my first Open Letter to the Securities and Exchange Commission detailing how Overstock.com deliberately violated Generally Accepted Accounting Principles (GAAP) in recognizing income for recoveries from underbilled fulfillment partners by improperly claiming that a “gain contingency” existed under accounting rules. The SEC Division of Corporation Finance agreed with my reports and Overstock.com was eventually forced to restate its 2008 and 2009 financial reports to correct those GAAP violations.

The Division of Corporation Finance reviewers did a superb job in carefully examining Overstock.com's financial disclosures. The SEC reviewers rejected each and every excuse put forth by Overstock.com in its desperate effort to avoid restating its financial reports for the third time in three years.

However, the SEC may not be aware that Overstock.com apparently lied about a certain key issue involving the timing of its decision to …

If You Question Medifast's Revenue Accounting, Expect a Subpoena Rather Than a Rebuttal

Rather than respond to my Open Letters to the Securities and Exchnage Commission raising serious questions about Medifast's (NYSE: MED) compliance with Generally Accepted Accounting Principles (GAAP) and SEC Topic 13 governing revenue recognition, the company has decided to subpoena me as a third party witness in its ongoing litigation with Fraud Discovery Institute, co-founded by convicted felon turned successful fraud buster Barry Minkow.

Starting in January 2009, Fraud Discovery Institute released a series of detailed investigative reports alleging potentially serious improprieties concerning Medifast's business model, marketing practices, and financial disclosures to investors in reports filed with the SEC. In addition, Barry Minkow openly disclosed that he has held a short position in Medifast securities, hoping to profit from the decline in the company's stock price (perfectly legal).

In February 2010, Medifast filed a multi-million dollar lawsuit alleging defamatio…

Open Letter to the Securities and Exchange Commission: Is Medifast Complying with Revenue Accounting Rules?

To Securities and Exchange Commission Chief Accountant Wayne Carnall:

In my first Open Letter, I asked the Securities and Exchange Commission Division of Corporation Finance to review Medifast's (NYSE: MED) revenue recognition policy to determine if it complies with Generally Accepted Accounting Principles (GAAP) and SEC Staff Accounting Bulletin Topic 13. In my second Open Letter, I promised the SEC "Forensic accounting in real time!" In this third open letter, I will deliver on that promise and provide you an updated analysis of Medifast's revenue accounting.

As I will detail below, a careful analysis of Medifast's disclosures to investors and customers raise a very serious question about the company's compliance with revenue accounting rules going back to 2004 and suggest that the company is possibly recognizing revenue up to 8 business days too early.

Chronology of Medifast's Revenue Recognition Disclosures

On March 14, 2005, Medifast filed its 10-KSB

Open Letter to the Securities and Exchange Commission: Can a Convicted Felon Help You Find Financial Reporting Violations?

To the Securities and Exchange Commission Chief Accountant Wayne Carnall:

In my previous Open Letter, I asked the Securities and Exchange Commission Division of Corporation Finance to review Medifast's (NYSE: MED) revenue recognition policy to determine if it complies with Generally Accepted Accounting Principles (GAAP) and SEC Staff Accounting Bulletin Topic 13: A. While I made no allegations of non-compliance with accounting rules, I am concerned about the possibility that Medifast may have prematurely recognized revenue based on a detailed analysis of the company's vague and skimpy financial disclosures.

After all, who am I to make such an allegation against Medifast's "...distinguished board of directors and executive team is populated with members of the U.S. military, the clergy, academia, and the legal profession," since I am a just a convicted felon like my dear friend Barry Minkow, lest I be possibly sued by the company and investigated by the SEC, like …

Class Action Complaint against Amedisys uses Sarbanes-Oxley Act Corporate Governance Provisions to Battle Alleged Corporate Malfeasance

Updated at bottom of article

Last week, Pomerantz Haudek Grossman & Gross LLP filed a class action lawsuit against Amedisys (NASDAQ: AMED) charging the company, its CEO William F. Borne and its CFO Dale E. Redman with securities fraud.  In the next few days, Bernstein Liebhard LLP and Finkelstein Thompson LLP filed similar class action lawsuits against the company. The lawsuits allege that Amedisys abused Medicare's reimbursement system for at-home therapy care based on a compelling analysis of company revenues in an April 27 Wall Street Journal article.

In addition, the lawsuits innovatively utilize a provision under Section 406 of the Sarbanes-Oxley Act 2002 which provides a back-door way for investors to force ethical corporate governance and sue public companies for malfeasance. That provision requires Senior Financial Officers, such as the CEO and CFO of public companies, to abide by a strict code of ethics which broadly defines corporate malfeasance and effectively makes…

Open Letter to the Securities and Exchange Commission: Why You Must Review Medifast's Revenue Accounting Disclosures

To the Securities and Exchange Commission Chief Accountant Wayne Carnall:

Based on my analysis of Medifast’s (NYSE: MED) financial disclosures below, I respectfully recommend that the Division of Corporation Finance immediately review the company’s revenue recognition policy, before it issues its Q2 2010 10-Q report. Medifast’s relatively vague revenue recognition policy and other skimpy disclosures give rise to reasonable questions concerning the company’s compliance with Generally Accepted Accounting Principles (GAAP) and SEC Staff Accounting Bulletin Topic 13: A.

Medifast's Revenue Recognition Policy

Medifast’s (NYSE: MED) revenue recognition policy is disclosed as follows in its various filings with the Securities and Exchange Commission (See 2009 10-K report pages 20 and 65):
Revenue Recognition. Revenue from product sales is recognized net of discounts, rebates, promotional adjustments, price adjustments, returns and other potential adjustments upon shipment and passing of ris…

How White-Collar Criminals Exploit Your Vanity - Beware of Compliments

Last Friday, I was the key note speaker at the Oregon Health Care Fraud Working Group Training Seminar, sponsored by the United State Attorney's Office for the District of Oregon. I explained to the group that while emphasis on effective oversight and internal controls are important factors in preventing or deterring white-collar crime, not enough emphasis is given to the underlying psychology used by white-collar criminals to prey on their victims and effectively commit their crimes.

I have said many times that, "White-collar criminals consider your humanity as a weakness to be exploited in the execution of their crimes" and as the cold-blooded and ruthless criminal CFO of Crazy Eddie, I learned that you can steal far more with a smile than you can with a gun.

White-collar criminals use a combination of charm and deceit to achieve their objectives. The more likable and charming that I was as a criminal, the easier it was for me to successfully lie to my victims and dec…