Monday, July 26, 2010

Penson Worldwide and Comtech Telecommunications Need to Learn How to Properly Calculate EBITDA under SEC Rules

Updated

Both Penson Worldwide (NASDAQ: PNSN) and Comtech Telecommunications (NASDAQ: CMTL) have issued recent earnings reports which include a calculation of EBITDA that apparently does not comply with Regulation G governing non-GAAP financial measures. As I will describe below, their EBITDA calculations include an erroneous adjustment for stock-based compensation costs.

How is EBITDA supposed to be calculated?

According to the SEC Compliance & Disclosure Interpretations, EBITDA is means net income before interest, taxes, depreciation, and amortization. See below:
Question 103.01

Question: Exchange Act Release No. 47226 describes EBIT as "earnings before interest and taxes" and EBITDA as "earnings before interest, taxes, depreciation and amortization." What GAAP measure is intended by the term "earnings"? May measures other than those described in the release be characterized as "EBIT" or "EBITDA"? Does the exception for EBIT and EBITDA from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S-K apply to these other measures?

Answer: "Earnings" means net income as presented in the statement of operations under GAAP. Measures that are calculated differently than those described as EBIT and EBITDA in Exchange Act Release No. 47226 should not be characterized as "EBIT" or "EBITDA" and their titles should be distinguished from "EBIT" or "EBITDA," such as "Adjusted EBITDA." These measures are not exempt from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S-K, with the exception of measures addressed in Question 102.09. [Jan. 11, 2010]
In other words, the only way to compute EBITDA is by starting with net income and adding back interest, taxes, depreciation and amortization. Any different calculation cannot be called EBITDA, but can be called "Adjusted EBITDA.”

How did Penson and Comtech calculate EBITDA?

Penson erroneously added back "stock based compensation" and Comtech erroneously added back "amortization of stock-based compensation" to net income to compute EBITDA. Penson’s “stock based compensation” and Comtech’s “amortization of stock-based compensation” are differing names to describe the same exact expense item.

Amortization expense is part of an EBITDA calculation and is derived from the amortization of fixed assets. However, amortization of stock-based compensation is not derived from amortizing a fixed asset. Therefore, stock-based compensation cannot be added back to net income to calculate EBITDA

Penson's highlighted EBITDA calculation:



Comtech's highlighted EBITDA calculation:



Why both Penson and Comtech EBITDA calculations do not comply with SEC Regulation G

The SEC Division of Corporation Finance has told other public companies that stock-based compensation is not properly included in an EBITDA calculation. For example, in 2007, the SEC Division of Corporation Finance told CGG Veritas that its EBITDA calculation erroneously included stock-based compensation:
The acronym EBITDA refers specifically to earning before interest, tax, depreciation and amortization. However, your measure also adjusts earnings for stock option expense. We will not object to your using such a measure as a liquidity measure but request that you rename it to avoid investor confusion.
CGG Veritas replied to the SEC:
In response to the Staff’s comment, we will in future filings refer to the non-GAAP measure in question as “EBITDAS”, which we will define as “earnings before interest, tax, depreciation, amortization and share-based compensation cost…
Likewise, from Q2 2007 to Q2 2008 Overstock.com (NASDAQ: OSTK) improperly included stock-based compensation costs in its EBITDA calculation. After a yearlong public battle, Overstock.com's embittered CEO Patrick Byrne finally changed his company's EBITDA calculation to comply with Regulation G. For more details, please read Lee Webb Stockwatch article and Richard Sauer's book.

Recently, I exposed even more financial reporting violations at Overstock.com that caused the company to restate its financial reports for the third time in three years. The SEC is investigating Overstock.com’s accounting irregularities

Recommendation

Before Penson Worldwide and Comtech Telecommunications issue any more quarterly press releases touting their financial performance, those companies need change their EBITDA calculations to properly comply with Regulation G. If they still want to use stock-based compensation in their calculations, their non-GAAP measure should be named "Adjusted EBITDA" or "EBITDAS" but not EBITDA.

Written by,

Sam E. Antar

Updates:

Crain's New York Business: Defense firm offers novel description of earnings by Aaron Elstein
But eagle-eyed accountant Sam Antar, former chief financial officer at electronics retailer Crazy Eddie, points out that things aren't quite as rosy as Comtech made them appear.

In Comtech's world, EBITDA not only means earnings before interest expenses, taxes and the rest, but also $2.3 million in something called amortization of stock-based compensation. That's a no-no, because as Mr. Antar observes, companies may not stray from the Securities and Exchange Commission's definition of EBITDA. If they do, they have to it call their results "adjusted EBITDA" or, perhaps in Comtech's case, "EBITDAASBC."

I sent an email to Comtech asking about this and will provide and update when the company responds.
Proxy Partisans - EBITDA and Stock-Based Compensation by Christopher Faille
Penson has added stock-based compensation into the EBITDA figure, while Comtech has addedf the amortizationof stock-based compensation. Well ... the A does stand for amortization, but not as it happens that amortization.

Of course, if the EBITDA figure itself can be jiggered with in this way, then any ratios of which EBITDA forms a part become less useful for any investors who might be relying on them. If an investor is diligently working out the value-to-EBIDTA ratio, he'll end up with a smaller ratio that he "should" for these firms. Smaller, that is, than he would if the rules were adhered to consistently. That smaller ratio might well lead him to include, "these stocks are at bargain prices."

Sam Antar has done good work bringing these shenanigans to public notice, and I congratulate him on that.
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 in cold-blood for fun and profit, and 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.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

I do not own any Penson Worldwide, Comtech Telecommunications, or Overstock.com securities long or short. My investigations of their financial disclosures are a freebie for securities regulators to get me into heaven, though I doubt I will ever get there because of my crimes.

Sunday, July 25, 2010

My Life as a White-Collar Criminal

Last Friday evening, Marcia MacMillan from CTV News Channel (a 24-hour news network in Canada) interviewed me and asked me what it's like to be a white-collar criminal and what role, if any, did morality play in my decisions to commit crime. 
To view this video, please click on link here.

You can watch the interview by clicking on this link.

Reflecting on my own white-collar criminal mind leaves no doubt that money is not the only motivating force compelling hardcore criminals to commit crimes. There was also a passion for the act, a sense of accomplishment, that made me enjoy committing my crimes. It is perhaps the same positive feelings of success that law-abiding citizens experience for a legitimate job well-done.

To better understand the behavior of white-collar criminals, take morality out of the equation. During my years at Crazy Eddie, we never had a single conversation about the morality of our actions. We did not give a damn about right and wrong.

Hardcore criminals don't question their unethical and immoral conduct. Laws, morality, and ethics are weaknesses of other people. They don’t factor in except by limiting society’s behavior. In our society, morality dictates that people are entitled to the benefit of the doubt. Ironically, the “benefit of a doubt” limits the behavior of law-abiding citizens while giving criminals greater opportunity to commit their crimes. After all, no one likes to be called "a paranoid" or "impolite."

Our late President Ronald Reagan used to say "trust, but verify." That initial trust gives criminals the freedom to take steps to evade detection. For example, Joseph T. Wells, founder of the Association of Certified Fraud Examiners, described certain steps I took during Crazy Eddie's audit to successfully execute my crimes:
Crazy Eddie’s auditors were provided a company office during their examination. They had a key to lock the desk—which they kept in a box of paperclips on top of the desk in full view. After the auditors left for the day, Eddie’s cohorts would unlock the desk, increase the inventory counts on the workpapers and photocopy the altered records. Were the auditors stupid? No, just too trusting. After all, no one wants to think the client is a crook. But it happens all too often. That’s why the profession requires auditors to be skeptical.
I took advantage of our auditor’s initial trust of management and rigged their audit verification of our books and records. Crazy Eddie's auditors were unable to find any irregularities because we knew exactly what they were looking at. By the time they got around to verifying our financial reports it was too late because we cheated by taking countermeasures to evade detection of our crimes.

The lesson of the Crazy Eddie fraud is, “Don’t trust, just verify. Be very skeptical.” Learn to exercise “professional paranoia.”

Written by:

Sam E. Antar

Recommended reading on the psychology of white-collar criminals and steps that can be taken to catch them:

Forensic Accounting and Fraud Examination, 1st Edition by Mary-Jo Kranacher (York College, City University of New York), Richard Riley (West Virginia University), Joseph T. Wells (Association of Certified Fraud Examiners)

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 in cold-blood for fun and profit, and 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.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

Recently, I exposed financial reporting violations by Overstock.com (NASDAQ: OSTK) as an independent whistleblower which resulted in the company restating its financial reports for the third time in three years. The Securities and Exchange Commission is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices.

I do not own Overstock.com or Bidz.com securities long or short. My exposure of confirmed financial reporting violations by Overstock.com and possible financial reporting violations by Bidz.com was a freebie to securities regulators to get me into heaven, though I doubt that I will ever get there.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

Tuesday, July 20, 2010

I Have A Question

Nice timing. NBTY Inc. (NYSE: NTY) Directors Michael L. Ashner and Peter J. White May purchased company stock just about two months before last week's announcement that NBTY is being acquired by the Carlyle Group, according to publicly available information.

On May 13, 2010, Michael Ashner purchased 5,000 NBTY common shares at a total cost of $171,295 or an average price per share of $34.26. Five days later on May 18, 2010, Peter White purchased 4,000 NBTY common shares at a total cost of $140,398 or an average price per share of $35.10.

On July 15, 2010, NBTY agreed to be purchased by the Carlyle Group. According to Dow Jones Newswires:
NBTY Inc. (NTY) agreed to be acquired by private-equity firm Carlyle Group in a deal valued at $3.5 billion in one of the largest transactions to take a public company private since the credit bubble burst.

Carlyle and Blackstone Group LP (BX), two of the world's largest buyout firms, had been eyeing the vitamin and nutritional-supplement maker, The Wall Street Journal reported Wednesday night.
Under the deal unveiled early Thursday, NBTY holders will receive $55 a share, a 47% premium to Wednesday's closing price. The stock has lost a quarter of its value the past three months and has never been at $55.
In July 2010, Carlyle agreed to pay $55 per share or about $21 per share more than the average share cost paid by Ashner and White in May 2010.

David Faber from CNBC reported:
Some background on the deal itself: Carlyle approached NBTY with an offer in early May, according to people familiar with the deal.

Note: Bold print and italics added by me.
So I have a question. If Faber's reporting is correct, does "early May" mean before or after Michael Ashner and Peter White bought their NBTY shares?

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 in cold-blood for fun and profit, and 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.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

Recently, I exposed financial reporting violations by Overstock.com (NASDAQ: OSTK) as an independent whistleblower. The Securities and Exchange Commission is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices.

I do not own NBTY securities long or short.

Friday, July 16, 2010

Goldman Sachs Settlement with SEC Ignores Company’s Duty to Provide Timely Disclosures to Shareholders about Investigation Leading up to Litigation

The Securities and Exchange Commission's settlement of a lawsuit against Goldman Sachs (NYSE: GS) over a certain subprime mortgage product sold to investors misses a key issue concerning the company's duty to provide timely and transparent disclosures to its own shareholders about government subpoenas, investigations, and pending enforcement actions against the firm. In this particular case, Goldman did not make timely disclosures about the regulator's investigation and pending lawsuit against the firm, right under the SEC investigator's noses.

Goldman Sachs chooses to keep shareholders in the dark about SEC investigation and pending enforcement action

During the summer of 2008, the SEC started investigating Goldman's marketing of a certain subprime mortgage product, known as ABACUS CDO, to investors who lost over $1 billion from that transaction.
At that time, Goldman Sachs knew that the SEC was investigating its failure to disclose material information to investors in violation of SEC Rule 10b-5 in connection with that transaction. However, Goldman Sachs did not disclose the SEC's investigation in its financial reports.

In July 2009, the SEC sent Goldman Sachs a Wells notice informing Goldman of its intention to file a lawsuit against the company. Still, Goldman Sachs chose not to disclose the SEC's pending enforcement action in its financial reports.

On Friday, April 16, 2010, the SEC filed a surprise lawsuit against Goldman Sachs and Executive Director Fabrice Tourre alleging securities fraud in connected with the company's marketing of the ABACUS CDO to investors. That day, Goldman Sachs shares plummeted from $183.31 per share to $160.30 per share or about 13%, wiping out about $12 billion of shareholder wealth.

Clearly, investors deemed the surprise news of the SEC complaint against the company as material information, unlike the management team running Goldman Sachs.

Goldman Sachs settles SEC charges

Yesterday, Goldman Sachs settled SEC charges against the firm. According to the SEC's press release:
...Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

Robert Khuzami
In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.
In a news conference, Director of SEC Enforcement Robert Khuzami spoke about Goldman's duty to provide full and transparent disclosure to its customers but ignored the company's duty to likewise provide such disclosures to its own shareholders:
They acknowledge that their marketing materials for the ABACUS CDO contained incomplete information, and that they failed to disclose both Paulson & Company's role in the portfolio selection process, and that Paulson's economic interests were adverse to CDO investors.

The settlement also contains forward-looking reforms. Goldman has agreed to tighten internal controls and assess the roles and responsibilities of Goldman personnel and others to insure that disclosures in future offerings of mortgage and CDO products are full and accurate.

In agreeing to the settlement, we also took into account that Goldman is engaging in a broad-based self-assessment of their overall business practices that will increase transparency, evaluate and remediate conflicts, and take other steps that collectively will reduce the chances that investors in the future will be misled.

This resolution achieves the goals of accountability, punishment for past misconduct and prospective reforms that are the hallmark of a successful outcome.

Today's settlement is a stark reminder that there will be a heavy price to be paid if firms violate the principles fundamental to our securities laws - full disclosure, honest treatment and fair dealing - and those principles do not change, even if the product is complex or the investor sophisticated.
By ignoring Goldman's failure to timely inform shareholders about the SEC's investigation of the company and then pending enforcement action, the SEC is sending a message that surprising investors about investigations and enforcement actions is fair game. Moreover, a resolution requiring self-assessment is meaningless, as anyone not sleeping soundly through the last decade should know.

Today, news of the settlement sent Goldman shares 4.43% higher to close at $145.22 per share, still far lower than its $181.31 price per share the day before the SEC filed its complaint against 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 in cold-blood for fun and profit, and 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.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

Recently, I exposed financial reporting violations by Overstock.com (NASDAQ: OSTK) as an independent whistleblower. The Securities and Exchange Commission is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices.

I do not own Goldman Sachs securities long or short.

Wednesday, July 07, 2010

Open Letter to the Securities and Exchange Commission: Investigate Troubling Issues at Amedisys Missed by Wall Street Journal

To Securities and Exchange Commission Chairperson Mary Schapiro:

On June 30, 2010, Amedisys (NASDAQ: AMED) announced that it "received notice of a formal investigation from the Securities and Exchange Commission (SEC) pertaining to the company, and received a subpoena for documents relating to the matters under review by the Senate Finance Committee." The SEC investigation follows an April 2010 Wall Street Journal report questioning Amedisys’s Medicare reimbursement patterns and raising serious questions about possible abuse by the company of Medicare’s reimbursement system. In mid-June 2010, several class action lawsuits were filed against Amedisys alleging securities fraud, based on the Wall Street Journal report.

In my analysis below, I will provide additional troubling data and issues missed in the Wall Street Journal report and not cited in the various class action lawsuits for the SEC to consider in its investigation.

Background

The analysis is based entirely on information derived from Amedisys's public disclosures in various reports filed with the SEC. Those reports provide certain statistical information about Medicare episodic, non-Medicare episodic, and non-Medicare/non-episodic home health care visits, admissions, and recertifications for each reporting period.

Amedisys further categorizes that data by base/start-up entities and acquired entities for each reporting report. Amedisys defines Base/Start-up agencies as agencies that were originally opened by the company and acquired entities owned by the company for at least a year.

Therefore, the analysis below is based almost entirelry on Amedisys’s statistical data for base/start-up agencies to provide a consistent apple-to apples comparison of the data.

Note: Download entire work sheet here (formatted for legal sized paper).

What explains the sudden increase in the growth of in base/startup Medicare episodic visits per admission?

Prior to Q2 2007, Amedisys reported fairly typical (i.e., moderate) growth in visits per Medicare episode. For example, during 2006, the number of visits per Medicare admission for base/start-up agencies increased to 29.4 visits per admission from 28 visits per admission in 2005, or a 2.2% increase over the previous comparable period. See the chart below:


Similarly, in Q1 2007, base/start-up Medicare episodic visits per admission declined to 29.1 visits per admission compared to 29.4 visits per admission in Q1 2006 or a 1.2 decrease from the previous year comparable period. See the chart below:


Starting in Q2 2007, however, the amount of base/start-up Medicare episodic visits grew much faster than admissions. By Q3 2009, base/start-up agencies reported an increase to 36.5 visits per admission, an all time-high for the company. See the chart below:


Why did the number of visits per Medicare admission at base/start-up agencies suddenly begin increasing at such dramatic rates starting in Q2 2007?

Why did recertifications skyrocket in 2007?

Looking more closely at data provided in company filings, it appears that the increase in visits per admission was driven mostly by an increase in recertifications and recertifications per admission. Recertifications occur when a provider receives permission from Medicare, based on a doctor’s request, to provide another “episode” of care.

Note: Comparable was data not available for base/start-up Medicare episodes. Therefore, the chart above includes combined amounts for base/start-up and acquired entity Medicare episodes.

According to Amedisys, the number of Medicare recertifications grew 51.07% from the first half of 2007 to the first half of 2008. Yet admissions increased just 42.72% in that same period. What could cause such a discrepancy?

Why visits per Medicare admission suddenly begin declining in Q4 2009?

In Q4 2009, base/start-up Medicare episodic visits per admission suddenly began to decline, falling to 35.2 visits per admission compared to 36.5 visits per admission in Q3 2009, It was the first Q4 v Q3 sequential decline in base/start-up Medicare episodic visits per admission since 2006. See the chart below:


And in Q1 2010, base/startup Medicare episodic visits per admission declined to 33.7 visits per admission compared 35.2 visits per admission in the preceding Q4 2009 period and 34.4 visits per admission during the comparable Q1 2009 period. Thus, Amedisys reported its first decline in comparable prior year base/start-up Medicare episodic visits per admission since Q1 2007. See the chart below:


What explains this sudden trend reversal and does it have anything to do with the onset of scrutiny by journalists (such as the Wall Street Journal) or analysts (such as Citron Research)?

Amount of base/start-up Medicare episodic visits per admission is much higher than non-Medicare episodic visits per admission, despite similar reimbursement rates and procedures

In reviewing Amedisys’s filings, I was also struck by the gap between visits per Medicare admission and visits per admission for other payors. Visits per admission are greatest for base/start-up Medicare episodic, second greatest for non-Medicare episodic, and smallest for non-Medicare non-episodic.

For example, during 2009, I calculated that there were 35.3 Medicare episodic visits per admission compared to 29.6 non-Medicare episodic visits per admission and 22.7 non-Medicare non-episodic visits per admission.

In 2009, Medicare episodic visits per admission were 19.2% higher than non-Medicare episodic visits per admission and in 2008 Medicare episodic visits per admission were 24.5% higher than non-Medicare episodic visits per admission. See the chart below:
 
 
One might argue that differences in reimbursement procedures explains the above gap. Yet, according to Amedisys, non-Medicare episodic visits are reimbursed in a “similar manner” to Medicare episodic visits. See disclosure from the company’s 2009 10-K report below:
Payments from Medicaid and private insurance carriers are based on episodic-based rates or per visit rates (non-episodic based) depending upon the terms and conditions established with such payors. Episodic-based rates paid by our non-Medicare payors are paid in a similar manner and subject to the same adjustments as discussed …for Medicare; however, these rates can vary based upon negotiated terms.
If both base/start-up Medicare episodic and non-Medicare episodic visits are reimbursed “in a similar manner” why do Medicare episodic visits per admission far exceed non-Medicare episodic visits per admission?

Ratio of base/start-up Medicare episodic recertifications to admissions is much higher than non-Medicare episodic recertifications to admissions despite similar reimbursement rates

Likewise, the ratio of recertifications to admissions is greatest for base/start-up Medicare episodic treatment, second greatest for non-Medicare episodic treatment, and smallest for non-Medicare non-episodic treatment. See the chart below:


I also find it interesting that, during 2008, the ratio of recertifications to admissions for Medicare cases handled by base/start-up agencies was over 100%. See the chart below:



Then, during 2009, the ratio of recertifications to admissions fell dramatically, particularly after Q1. For the full year (2009) it was 93.7% versus 100.3% the year prior (2008). See the chart below:


What explains the substantial decline in recertifications to admissions, particularly after Q3 2009? And did it have anything to do with increased scrutiny of the company’s published financial disclosures?

Sudden resignation of two high level executives coincides with the recent declines in visits and recertifications per Medicare admission. Is it purely coincidental?

On September 3, 2009, Amedisys President and COO Larry Graham and Alice Ann Schwartz, its chief information officer, suddenly resigned from the company. Amedisys provided no reason for their resignations and simply said that the two execs “are leaving the company to pursue other interests.”

In my experience, sudden, unexpected executive departures are often a sign of problems beneath the surface. And while it could be entirely coincidental, the trends at Amedisys appear to be consistent with my experience.

After the sudden resignation of Graham and Schwartz, the ratio of Medicare episodic recertifications to admissions dramatically dropped from 96.3% in Q3 2009 to 89.3% in Q4 2009 and to just 81.7% in Q1 2010. The number of visits per Medicare admission also began to decline, as I described earlier.

In the months before Graham's sudden departure from Amedisys, he unloaded over $2.6 million of stock. Was it shrewd timing in anticipation of a run to the exits before the fire bell sounded? In my world, I don't believe in coincidences.

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 in cold-blood for fun and profit, and 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.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

Recently, I exposed financial reporting violations by Overstock.com (NASDAQ: OSTK) as an independent whistleblower. The Securities and Exchange Commission is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices.

I do not own Overstock.com, Bidz.com, or Amedisys securities long or short. My investigation of  those companies is a freebie to securities regulators to get me into heaven, though I doubt that I will ever get there. In any case, no good deed ever goes unpunished by the SEC. That's life.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.