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What Indicted SAC Capital Portfolio Manager Mathew Martoma Can Learn from Crazy Eddie

Back in March 1989, I faced an agonizing decision: Either cooperate with the F.B.I. and S.E.C. investigations of fraud at Crazy Eddie or spend a long time in prison behind bars. Likewise, former SAC Capital Advisors portfolio manager Mathew Martoma faces a similar important decision: Either cooperate with federal investigations of alleged illegal insider trading at SAC Capital or risk a long prison term. At the time I made my decision, I was married with three young children. Martoma is married with three young children too. We both had larger than life bosses who pressured us with unreasonable demands (me: my cousin Eddie Antar, Martoma: Steven A. Cohen).

Facing an imminent indictment and a long prison term behind bars, I chose to cooperate with government investigators and turn in my cousin Eddie Antar and other relatives who ran our 18 year old criminal enterprise. Today, Mathew Martoma faces the same pressure I experienced back in 1989.

Apparently, federal investigators believe th…

Judge Orders Overstock.com to Produce Evidence in California Consumer Fraud Lawsuit, While Major Investor Unloads Shares

A new development recently emerged in the consumer fraud lawsuit that seven California district attorneys have filed against Overstock.com (NASDAQ: OSTK) which raises a significant question for Overstock shareholders: What is the company trying to hide?

For the second time in the last two years, Overstock.com has “refused” to turn over crucial information about potential witnesses to the prosecutors, according to recent court filings. Judge Wynne Carvill had to issue a court order compelling Overstock.com to turn over such information, as Judge Robert B. Freeman had done in a previous court ruling.

The District Attorneys are seeking at least $15 million of restitution, fines, penalties, and cost reimbursements from Overstock.com. Evidently Overstock feels that the information it has withheld, which it must now disclose, will help the DAs in achieving that goal.

Judge compels Overstock.com to produce documents

In the lawsuit, filed in November 2010, the California DAs alleged that “Ove…

Green Mountain Coffee Roasters’ Growing Inventory Levels: Is It a Fumble or a Fraud?

Has Green Mountain Coffee Roasters (NASDAQ: GMCR) fumbled in managing its inventory or has it engaged in an inventory fraud to inflate earnings?

Background


As the criminal CFO of Crazy Eddie, I learned that the overstatement of inventory levels was the easiest way to inflate earnings. Auditors don't always supervise the counting of each and every physical inventory item to confirm their existence. Even if the auditors confirm the physical existence of all inventory items, they don't always trace how every single item arrived in a company's storage facilities. Therefore, the same inventory items can be moved from location to location and counted several times to inflate earnings.

In September 2010, the Securities and Exchange Commission started a probe of Green Mountain Coffee's revenue accounting practices. Shortly afterwards, a class action lawsuit was filed against the company alleging that it engaged in securities fraud by inflating its inventory numbers to overstat…

Lawsuit Filed Against ZAGG Alleges It Concealed Stock Pledges

Last Thursday, a lawsuit seeking class action status was filed against ZAGG (NASDAQ: ZAGG) Incorporated, certain members of its board of directors, and certain officers of the company. It alleges that they violated federal securities laws by improperly concealing certain stock pledges made by ZAGG’s former CEO and Chairman Robert J. Pedersen. Other law firms who specialize in bringing class action lawsuits have announced that they are contemplating filing complaints against ZAGG. (Download the complaint here).

ZAGG makes protective coverings for Apple's (NASDAQ: AAPL) iPhone and iPad and other devices. Big-box retailers such as Best Buy (NYSE: BBY) and Walmart (NYSE: WMT) carry ZAGG's product.

Background

On Friday August 17, 2012 ZAGG issued a press release saying that its co-founder Robert Pedersen resigned from his posts as CEO and Chairman. It did not mention any reason for his resignation. Later that day, Robert Pedersen was interviewed by the Salt Lake Tribune and it repor…

Real Estate Investor Who Fled Country Now Seeks to Raise $1 Billion in IPO

United Realty Trust Incorporated is seeking up to $1 billion of capital from investors in an initial public offering (IPO). Deep inside the prospectus on pages 89 and 90 is a startling disclosure about Eli Verschleiser, its President and member of its Board of Directors:

At the age of 17, while a high school student, Eli was subpoenaed to appear before a federal grand jury inquiring into the fraudulent activities of a group of individuals he knew. Eli exercised his Fifth Amendment rights and continued to do so after being given “use immunity.” Eli appeared before a federal judge who directed him to reappear. He did not reappear and, instead, moved overseas, where he remained for several years. While overseas, a federal indictment was unsealed naming over 20 individuals in connection with fraudulent activities, including Eli. Approximately two years later, his family contacted an attorney to help him return to the country. He eventually pleaded guilty to one count of failure to appear…

ZAGG Conference Call Raises More Questions than Answers about Pedersen's Resignation

Updated

Late Tuesday afternoon August 28, 2012, ZAGG Inc. (NADAQ: ZAGG) held a conference call with investors in an effort explain the sudden resignation of its co-founder Robert Pedersen as its CEO and Chairman of the Board of Directors on August 17. However, the company's explanation of the reasons behind Pedersen's resignation raises more questions than it answers.

Background

On Friday August 17, 2012 Robert Pedersen resigned from his posts as CEO and Chairman of ZAGG. The company’s press release did not mention any reason for his resignation. However, on that very same day after the market closed Robert Pedersen filed a Form 4 with the Securities and Exchange Commission. It disclosed that he sold 515,000 shares at an average price of $8.2214 per share on August 14, just three days before ZAGG announced that he resigned from the company. Pedersen sold 512,240 of those shares to "to meet margin calls" and 2,760 shares were sold separately. He collected $4.234 millio…

ZAGG CEO Sold Stock Three Days before His Resignation

Updated at 8:26 AM ET

On Friday, August 17, 2012, ZAGG Inc. (NASDAQ: ZAGG) surprised investors and announced that its co-founder Robert G. Pedersen II resigned from his posts as CEO and Chairman of the company. The press release did not mention any reason for his resignation. The announcement was made after the stock market closed.

However, on that very same day after the market closed Robert Pedersen filed a Form 4 with the Securities and Exchange Commission. It disclosed that he sold 515,000 shares at an average price of $8.2214 per share on August 14, just three days before ZAGG announced that he resigned from the company. Pedersen sold 512,240 of those shares to "to meet margin calls" and 2,760 shares were sold separately. He collected $4.234 million in gross proceeds from his sales of stock and it appears that most of that amount was used to satisfy margin calls.

Back on December 21, 2011, Pedersen sold 345,200 shares at an average price of $7.5248 per share and receive…

Can Green Mountain Coffee Roasters explain those missing beans?

Green Mountain Coffee Roasters (NASDAQ: GMCR) can't seem to get its act together. It appears to have made a significant error in a recent revision of its segment numbers. Specifically, $15.2 million of purported revenue adjustments for a twenty-six period in 2011 are unaccounted for. Its revenue adjustments do not match revenue numbers disclosed in other financial reports.

Background

Green Mountain Coffee Roasters operates its business under three segments: Specialty Coffee business unit (“SCBU”), Keurig business unit (“KBU”) and a Canadian business unit (“CBU”). Starting in fiscal year 2012, GMCR moved its Timothy’s subsidiary out of the SCBU segment and into the CBU segment. At the same time it moved a portion of the At Home ("AH") single cup business from its KBU segment to its CBU segment.

In subsequent 10-Q reports issued during fiscal year 2012, Green Mountain Coffee revised its previous fiscal year 2011 segment numbers to show Timothy’s as part of the CBU segment. …

Green Mountain Coffee’s Numbers Submitted to S.E.C. Examiners Don’t Add Up

Last April, the Securities and Exchange Commission Division of Corporation Finance sent Green Mountain Coffee Roasters (NASDAQ: GMCR) a comment letter requesting certain information about its segment reporting in its 10-K report for the fiscal year ended September 24, 2011. The S.E.C.’s comment letter and the company’s response were just made public this week.

Green Mountain Coffee has three operating segments: Specialty Coffee business unit (“SCBU”), Keurig business unit (“KBU”) and a Canadian business unit (“CBU”). The company provided certain financial information to the S.E.C. examiners relating to its Timothy’s subsidiary for the five quarter period ended September 24, 2011 when it was included in the SCBU reportable segment. However, Timothy’s numbers appear to be erroneous when compared to financial disclosures made by the company in other S.E.C. filings.


If Green Mountain Coffee’s numbers are to be believed, then its income before taxes for its Timothy’s subsidiary exceeded g…