Tuesday, September 27, 2011

As InterOil tumbles, actor Shia LaBeouf and John Thomas Financial CEO Thomas Belesis have egg on their faces

Updated 10/03/11

Today, shares of InterOil Corporation (NYSE: IOC) tumbled down $9.27 per share to close at $45.82 per share, a drop of 16.83% in market value. The stock lost over $300 million in market value in a single day!

Back on March 24, 2010, InterOil shares closed at $67.95 per share. At that time, actor Shia Labeouf and John Thomas Financial CEO Thomas Belesis were busy hyping InterOil shares to investors. Shia LaBeouf trained at John Thomas Financial to study for his role in the motion picture "Wall Street 2: Money Never Sleeps." LaBeouf claimed that he turned an initial investment of $20,000 into $489,000 by trading various securities while training for his role in the movie.

A day later, on March 25, 2010, Kaja Whitehouse from the New York Post reported:

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. [Emphasis added.]

On April 21, 2010, Independent Film Corporation (IFC) posted a videotape on Youtube showing John Thomas Financial CEO Thomas Belesis shouting to his brokers, "InterOil is at $67, hopefully going to $85!"



Thomas Belesis sounds like he's running what's known as a boiler room operation. He did not want anyone to see that video of him pumping InterOil and filed a lawsuit seeking to take down that video against Independent Film Corporation and Honest Engine Inc.

On September 7, 2011, the Financial Industry Regulatory Authority (FINRA) fined John Thomas Financial $275,000 for overcharging its customers.

With InterOil closing at $45.82 per share today, actor Shia Labeouf and John Thomas Financial CEO Thomas Belesis have egg on their faces.

Recommended reading

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

Financial Investigator - AMBER Ready: The Moonlighting Cop, The Wanna Be Mogul and The Killer App That Wasn’t by Roddy Boyd

Written by,

Sam E. Antar


Disclosure

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. In addition, I teach about white-collar crime for government entities, professional organizations, businesses, and colleges and universities.

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. My past sins are unforgivable.

I do not have any position in InterOil securities.

Sunday, September 25, 2011

Were Groupon’s and Overstock’s Management and Auditors Stupid or Did They Condone Improper Accounting Practices?

Back on August 24, 2011, accounting professors J. Edward Ketz and Anthony H. Catanach Jr., reported in their blog that Groupon (planned ticker symbol: GRPN) violated Generally Accepted Accounting Principles (GAAP) in reporting its revenues and recommended that it restate its financial reports to correct its error. They sent a complaint to the Securities and Exchange Commission Whistleblower Office. Last week, Groupon restated its financial reports to comply with revenue accounting rules as called for by Ketz and Catanach. The company revised its reported 2009 revenues from $30.5 million to $14.5 million and its 2010 revenues from $713.4 million to $312.9 million – no small potatoes!

Why did Groupon’s CFO and its auditors at Ernst and Young (the third largest accounting firm in the world) miss revenue accounting violations? Ketz and Catanach did not have access to company management or its books and records. They found GAAP violations from merely reading financial reports filed with the S.E.C. in anticipation of the company’s initial public offering. They compared the company’s revenue accounting disclosures with applicable accounting rules and found material misstatements in violation of GAAP. Were Groupon’s management and its auditors stupid? Shouldn’t they know revenue accounting rules? In a blog post this evening, noted forensic accountant and author Tracy Coenen suggests that Groupon used higher and improper revenue numbers to mask troubling trends in its business model.

Over the last several years, my blog exposed a pattern of accounting shenanigans which helped Overstock.com (NASDAQ: OSTK) (also known as O.co) materially overstate its reported earnings. From Q2 2007 to Q2 2008, the company used improper EBITDA calculations to materially inflate its financial performance in violation of S.E.C. Regulation G. For example, in Q2 2008 Overstock.com reported a positive $1.117 million EBITDA using its improper calculation instead of a negative $0.430 million EBITDA had it complied with Regulation G. From Q4 2008 to Q3 2009, Overstock.com violated Generally Accepted Accounting Principles (GAAP) and materially inflated its reported earnings. For example, in Q4 2008, Overstock.com improperly reported a $1.014 million net profit instead of a $0.705 million net loss if it has followed GAAP.

In both cases, I provided the company with detailed information about its accounting irregularities, but its CEO Patrick Byrne chose to vilify me and continue violating accounting rules. In both cases, my analysis of Overstock.com's accounting violations was ultimately proven correct by its later revisions of financial reports. The S.E.C. is currently investigating Overstock.com for securities law violations.

Why was I was able to find accounting irregularities at Overstock.com missed by PricewaterhouseCoopers and Grant Thornton (the second and sixth largest accounting firms in the world)?  PricewaterhouseCoopers was Overstock.com's auditors from 1999 to 2008 and Grant Thornton was its auditors from Q1 to Q3 2009. Just like Professors Ketz and Catanach, I found accounting violations by merely reading Overstock.com's financial reports and comparing its financial disclosures to applicable accounting rules. I am not an accounting professor and I lost my CPA license because I am a convicted felon. Is a convicted felon and former CPA smarter than the company and two of the six largest public accounting firms?

Back in my Crazy Eddie days, in many cases I had to deceive my auditors at KPMG (then known as Peat Marwick Main) to manipulate earnings and defraud investors. In October 2000, Joseph T. Wells asked the following question about Crazy Eddie's auditors in the Journal of Accountancy:

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 personally don’t believe that the managements of both Groupon and Overstock.com tricked their auditors into using improper accounting rules to misstate their respective company's financial performance. Further, I don’t believe that the managements and auditors of Groupon and Overstock.com were so stupid that they did not understand accounting rules. I believe that the managements of both companies simply chose to avoid following applicable accounting rules and their auditors condoned those practices. Seriously, can they be so stupid? If so, their audits are nothing but window dressing.

Public accounting firms are supposed to be gatekeepers and protect the integrity of financial reporting. However, financial reports have apparently become promotional materials to help inflate stock prices, rather than provide investors with a proper picture of a company’s financial performance. In too many cases, public accounting firms have become advocates of management at the expense of investors, creditors, and other users of financial information. Some investors don’t seem to care as long as they can profit from higher stock prices caused by improper accounting practices that are condoned management and so-called independent auditors.

Our government doesn’t seem to care, too. President Barack Obama wants cut red tape and make it easier for small companies to go public without going through a rigorous review process by the Securities and Exchange Commission. Front runner for the Republican Party presidential nomination Mitt Romney wants to repeal corporate governance and accounting reforms under the Sarbanes-Oxley Act altogether. Meanwhile, congressional Republicans have already succeeded in cutting funding for the Securities and Exchange Commission despite increased responsibilities under the Dodd-Frank Act.

Have you ever wondered why committing securities fraud is so easy and is going to get even easier in the future?

Written by:

Sam E. Antar

Recommended reading

TheStreet.com - Bucket List of Apologies -- SEC Edition by Gary Weiss

TheStreet.com - Obama Signals Green Light for Stock Fraud by Gary Weiss

Footnoted.com - The Footnoted Jobs Program... by Michelle Leder

Business Insider - "The Feds Are Drinking The Same Kool-Aid As Crazy Eddie's Former Auditors" by Sam E. Antar

Dag Blog -"Crazy Eddie" Fraudster Sam Antar To Return To Crime - Thanks to Darrell Issa & Anti-Regulation Republicans by William K. Wolfrum

Disclosure

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. In addition, I teach about white-collar crime for government entities, professional organizations, businesses, and colleges and universities.

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. My past sins are unforgivable.

I do not have any position in Groupon or Overstock.com securities.

Friday, September 09, 2011

Why White-Collar Criminals Should Thank President Obama and Congressional Republicans

Last night, in his address before Congress, President Barack Obama said, "We're also planning to cut away the red tape that prevents too many rapidly growing start-up companies from raising capital and going public." Perhaps, President Obama does not understand that it is already easy for private companies to cut "red tape" and go public through what is known as a reverse-merger. Fraudulent companies have routinely used reverse-mergers to avoid regulatory scrutiny and defraud investors. If Obama wants to cut more "red tape" it will be even easier for white-collar criminals to defraud investors.

Meanwhile, congressional Republicans have already succeeded in cutting funding for the Securities and Exchange Commission despite increased responsibilities under the Dodd-Frank Act. According to the New York Times, an S.E.C. memo warned: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.” Therefore, white-collar criminals may have less reason to worry about an underfunded and overburdened S.E.C. investigating and prosecuting them.

In a reverse-merger, a private company acquires control of an S.E.C. registered public shell company. The public shell company is called a "shell" because it exists mainly on paper. It has an organizational structure, but has no assets or liabilities. A reverse-merger allows a private company to bypass the lengthy and complex process of going public and intense scrutiny by federal and state regulators, because the process was completed beforehand with the shell public company.

On June 9, 2011, the Securities and Exchange Commission issued the following advisory:

Given the potential risks, investors should be especially careful when considering investing in the stock of reverse merger companies,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy. “As with any investment, investors should thoroughly research the company – including ensuring there is accurate and up-to-date information – before making a decision to invest.”
Reverse mergers permit private companies, including those located outside the U.S., to access U.S. investors and markets by merging with an existing public shell company. The SEC and U.S. exchanges recently suspended trading in a more than a dozen reverse merger companies, citing a lack of current, accurate information about these firms and their finances. [Emphasis added.]

We must eliminate reverse-mergers which are exploited by fraudulent companies to raise capital from gullible investors. If anything, the government needs to strengthen regulatory scrutiny of private companies seeking to raise capital from the public to prevent future frauds.

Further, the S.E.C. needs more resources to investigate suspected wrongdoing and prosecute criminals. Cuts to the S.E.C.'s budget by congressional Republicans had no effect on the budget deficit. The S.E.C. is financed by fees levied on companies it regulates, not taxpayer revenue. New York City has ten times more cops than the S.E.C. has employees and twice as many cops than Special Agents employed by the F.B.I.

Last May, the Washington Times reported that the Obama administration is allowing the Justice Department and the S.E.C. to rely on internal investigations by companies suspected of wrongdoing as a means to save money. Does the Obama administration really believe that white-collar criminals can do a credible job investigating themselves?

Cutting "red tape" and the S.E.C.'s budget will result in more fraud on investors and less criminals being investigated and prosecuted for their crimes. The Obama Administration and congressional Republicans are making life easier for white-collar criminals. When the door is open, white-collar criminals will walk right through it.

Written by,

Sam E. Antar

Recommended reading

TheStreet.com - Obama Signals Green Light for Stock Fraud by Gary Weiss

Footnoted.com - The Footnoted Jobs Program... by Michelle Leder

Business Insider - "The Feds Are Drinking The Same Kool-Aid As Crazy Eddie's Former Auditors" by Sam E. Antar

Dag Blog -"Crazy Eddie" Fraudster Sam Antar To Return To Crime - Thanks to Darrell Issa & Anti-Regulation Republicans by William K. Wolfrum

Disclosure

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. In addition, I teach about white-collar crime for government entities, professional organizations, businesses, and colleges and universities.

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. My past sins are unforgivable.