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Why is obstructing California District Attorney’s investigation into allegations of consumer fraud?

Updated at 10:40 PM ET (see bottom of article)

On November 17, 2010, District Attorneys from seven California counties sued (NASDAQ: OSTK) alleging that the company has engaged in fraudulent pricing practices after a two year investigation. The lawsuit alleged that:
9. Beginning on a date no later than January 1, 2006, Overstock routinely and systematically made untrue and misleading comparative advertising claims about the prices of its products.
11. …Overstock used various misleading measures to inflate the comparative prices, and thus artificially increase the discounts it claimed to be offering consumers.
22. Often Overstock has not been determining or verifying the price other merchants charge for those identical products. Rather, Overstock has been using various misleading methods to make up its own “straw-man” prices which it claims other merchants are charging for those products, and then claiming that its own prices are significantly lower.
23. Overstock has advertised comparative prices which do not exist (i.e., simply making up the prices charged by other merchants).
The district attorneys are seeking at least $15 million of restitution, fines, penalties, and cost reimbursements from for allegedly defrauding consumers. (Download a copy of the lawsuit). obstructing and stonewalling California District Attorney investigation of alleged consumer fraud

On April 1, 2011, the District Attorney of Alameda County filed a motion to compel to turn over the present or last known contact information for certain former employees with knowledge of alleged fraudulent pricing practices (Download a copy of motion here):
PLEASE TAKE NOTICE THAT on May 5, 2011, at 2:00 p.m., or as soon thereafter as the matter may be heard in Department 20 of the Alameda County Superior Court, Plaintiff, People of the State of California (hereinafter “The People”) will and do hereby move, pursuant to California Code of Civil Procedure Section 2030.300, for an order compelling defendant, Inc. (hereafter “Overstock” or “Defendant” to provide further responses to the People’s First Set of Interrogatories to Overstock.
Specifically, the People will and do hereby move for an order compelling to further respond to Special Interrogatories 8 and 14 by providing current contact information for the former employees whose names Overstock disclosed in response to these Interrogatories.
The People met and conferred via email in good faith in an attempt to informally resolve this dispute and have offered to enter into a protective order as a means of satisfying’s asserted privacy objections. Nevertheless, has refused to provide the People with the information sought. [Emphasis added.]
Further, the District Attorney's motion to compel states:
Included in these interrogatories was a request for the name of each former employee, and their "present or last known address, telephone number, e-mail address, present or last known telephone number, and present or last known cell number.
...rather than provide current contact information, listed its corporate address and telephone number, even though the individuals in question were by definition former employees. [Emphasis added.]
Rick Koerber, who is under indictment for alleged Ponzi scheme, with Patrick Byrne
In law enforcement circles, there is a term known as the “three exes” for ex-lovers, ex-employees, and ex-business associates. In many cases, such informants provide crucial information to law enforcement agencies that investigate and prosecute white-collar crime.

Apparently, is afraid because the Alameda County District Attorney wants to directly contact ex-employees with possible knowledge of alleged wrongdoing without going through the company as a go-between. That's why only provided the District Attorney its own address and phone number as contact information for its former employees, rather than turnover to them the present or last known addresses of those former employees. is trying to make the District Attorney contact those ex-employees through the company, rather than letting the District Attorney directly contact those ex-employees. In other words, wants to know in advance exactly who the California District Attorney is going to talk to.

Since the District Attorney offered "offered to enter into a protective order as a means of satisfying’s asserted privacy objections" it seems that the company is using the privacy issue as a ruse. It appears that is using the privacy issue as a pretext to thwart the District Attorney's investigation into alleged wronging by the company.

In any case, the company has no sense of irony when it comes to privacy. It has no issue invading the privacy of company critics, bloggers, journalists, and their families - their minor children included. invades the privacy of company critics, bloggers, journalists, and their families - minor children included.

In 2009, I identified certain violations of Generally Accepted Accounting Principles (GAAP) by that allowed it to fabricate a Q4 2008 profit rather than a properly reported loss. I sent emails to and the Securities and Exchange Commission (SEC) alerting them about the company’s illegal accounting practices. I urged the company to restate its financial reports to correct its improper accounting practices. Instead of properly complying with GAAP, continued to overstate income in Q1, Q2, and Q3 2009. The company even fired Grant Thornton as its auditor for agreeing with my recommendations.

In September 2009, the SEC started investigating In March 2010, finally admitted that it violated GAAP and restated its financial reports to correct its violations, as I recommended a year earlier.

CEO Patrick Byrne personally attacked me on a stock market chat board, during various earnings calls, and in the press in an effort to discredit me. Byrne even hired internet stalker Judd Bagley to interfere with my divorce and pretext my children and relatives on Facebook after I pointed out the company's accounting violations.

According to best-selling author and columnist Gary Weiss:
Bagley created "Larry Bergman" and an unknown number of phony Facebook accounts to con people into "friending" him. That way he could circumvent Facebook security, violating their rules and, well, Lord knows how many laws he broke in this pretexting scheme.
Judd Bagley looks creepy, too.
The company's pretexting operation also targeted dozens of other journalists, bloggers, critics, and their minor children, too. Attorney and Big Picture blogger (over 50,000 daily readers) Barry Rithholtz called Judd Bagley a "possible pedarast." Ritholtz's family was spied on, too. Eventually, Facebook booted Bagley for violating its rules.

In Patrick Byrne’s deluded mind, apparently Bagley seemed like the right stalker for the job of preying on the minor children of critics and journalists. Back in 2002, Judd Bagley was the spokesman for Kevin Garn who lost a primary election to Rob Bishop for the Republican nomination in Utah's 1st Congressional District. Kevin Garn admitted that around 1984 he shared a hot tub with a nude 15-year-old minor girl while he was 29 or 30-years-old. Years later, during his 2002 unsuccessful campaign for Congress Garn paid her $150,000 in hush money to keep her quiet.

On March 13, 2010, the Huffington Post reported that Kevin Garn:
...resigned from the Legislature Saturday, two days after acknowledging he paid a woman $150,000 to keep quiet about a nude hot-tubbing incident that took place a quarter century ago when she was a teenager.”
Garn told colleagues he paid the woman, Cheryl Maher, after she began contacting reporters about the incident during his unsuccessful bid for a congressional seat in 2002. Despite a confidentiality agreement, the now 40-year-old Maher began contacting local news media last week to retell her story about being naked with Garn when she was 15, he said Thursday. [Emphasis added.]
Apparently, the nauseating Judd Bagley likes to work for bosses like Patrick Byrne and Kevin Garn who have no qualms about preying on innocent minor children.

Google busts for cheating

Patrick Byrne while intoxicated
In February 2011, Google penalized for improperly gaming its search algorithm to boost its search rankings. On April 8, 2011, filed an 8-K report and disclosed:
As described in our Annual Report on Form 10-K for the year ended December 31, 2010, on February 22, 2011, Google Inc. notified us that it was penalizing us in natural search results for noncompliance with some of Google’s natural search guidelines. As a result, we have dropped significantly in some Google natural search result rankings.  In our Form 10-K, we stated our belief that the Google penalty period might last between two to four weeks, and our estimate that the lower Google natural search rankings may have as much as a 5% negative impact on our revenue during the penalty period.
While we have removed or, in the case where we do not have access, requested removal of all of the questionable links of which we are aware and of which Google has informed us,  at the date of this filing, Google is not yet fully satisfied and continues to penalize us in  natural search results.  We now estimate that it will be at least another two to three weeks before Google will end the penalty period. During the penalty period to date, we have experienced an approximately 5% negative impact on our revenue, which we anticipate will continue during the penalty period. [Emphasis added.]
Last year, reported $264.33 million of revenues for Q1 2010. A "5% negative impact on revenue" during the Google penalty period translates into approximately $13 million of lost revenues assuming the penalty period lasts for three months based on the previous year's revenues. Based on's disclosure above, the penalty period is expected to last only nine weeks: from February 22, 2011 to the end of April or early May. Therefore, the negative impact on revenues can be calculated at roughly $9 million.

Update on current SEC investigation

The SEC continues to investigate securities law violations by In its 2010 10-K report, the company disclosed that the SEC is now looking into its allowances for sales returns:
On June 11, 2010 we received a comment letter from the staff of the SEC issued with respect to the staff's review of, among other filings, our Form 10-K for the year ended December 31, 2009. In addition to other comments, the staff's June 11, 2010 letter included comments requesting additional information and disclosures regarding our allowance for sales returns. We responded to the staff's comments, and after additional correspondence, the staff informed us by letter dated August 23, 2010 that the staff had no further comments at that time. [Emphasis added.]
I contacted the SEC and suggested that they take a second look at's June 2010 responses, based on certain information I supplied them. disclosed that:
On December 13, 2010 we received a comment letter from the staff issued with respect to the staff's review of our Form 10-Q for the quarter ended September 30, 2010. In addition to other comments, the staff's December 13, 2010 letter included comments requesting additional information regarding our allowance for sales returns and referenced one of our responses to their letter dated June 11, 2010 about sales returns. We have responded to the staff's December 13, 2010 comments, but the staff's comments about our sales returns allowance remain unresolved at the date of this filing. We continue to work with the staff to address their open comments. [Emphasis added.]
From December 31, 2007,’s sales returns allowances declined from $24.326 million to $11.923 million at December 31, 2010 while annual revenues rose from $765.9 million in 2007 to $1.09 billion in 2010. Usually, sales returns grow with revenues, but in the case of, they declined as revenues increased. Apparently, the SEC is examining whether improperly inflated its sales returns allowance in prior years to create an illegal "cookie jar reserve" and gradually reduced that reserve in later years to improperly inflate its profits.

Written by:

Sam E. Antar

Additional coverage on California District Attorney investigation:

Gary Weiss: Obstructs California Fraud Probe

"According to the court filings, Overstock is trying to force the California cops to contact former employees through Overstock. This squalid effort to derail the investigation is described by Overstock as an effort to protect the privacy of former employees, when of course the opposite is the clear intent. Overstock wants to know which of its former employees' is being contacted by California to chat about the company's cheesy pricing practices."

"Sam points out the irony of this line of bull."

Street Insider: (OSTK) Falls As Consumer Fraud Investigation Highlighted

"The downside pressure seen in Inc. (Nasdaq: OSTK) mid-day Tuesday is related to a blog post at "While Collar Fraud", which discuses the recent California District Attorney’s investigation into allegations of consumer fraud."

Schaeffer's Investment Research - Put Players Pummel as Shares Shed 4% by Elizabeth Harrow

"On the charts, OSTK is off about 4% today as traders respond to a critical blog post over at White Collar Fraud highlighting the firm's dispute with California authorities. Today's drop deepens the equity's year-to-date deficit of 10.4%, with OSTK significantly underperforming the broader equities market."


I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped my cousin 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 heroic 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. Often, I refer cases to them as an independent whistleblower. I teach about white-collar crime for professional organizations, businesses, and colleges and universities.

Recently, I exposed GAAP violations by which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

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 securities long or short. My investigation of this company is a freebie for securities regulators to try to get me into heaven, though I doubt I will ever get there. My past sins are unforgivable.


Sam E. Antar said…
I love that nut case CEO Patrick Byrne. He's given me a second lease on life as a successful independent whistleblower and forensic accounting blogger. Byrne completes me :-)
gds said…
Sam - your math is wrong here. "A 5% negative impact on revenue" during the penalty period does NOT translate into $13M in lower revenue based on Q1 2010 revenue of $264M. While it is true that $13M is roughly 5% of $264M....Google did NOT penalize them the entire quarter (I think it started on 2/22). 2/22 to 3/31 represents less than 1/2 of Q1; furthermore, Jan revenue is likely higher than Feb and march. The actual revenue impact to Q1 2011 will be less than 1/2 your $13M figure. Please correct - Glenn
Sam E. Antar said…
GDS: I updated item. Thank you.
Russsty said…
This comment has been removed by a blog administrator.

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