Are the Feds Going Insane?

Memo to White-Collar Criminals:

If the Feds come knocking, just tell them that you will conduct an “internal investigation” into your suspected wrongdoing. They may be gullible enough to believe whatever you report. At worst, you can throw them some crumbs and admit to some mistakes to avoid a wider investigation into your unlawful activities. I'm not kidding!

Sam E. Antar (Convicted Felon, Graduating Class of 1992)

Sarcasm aside, back in my criminal days at Crazy Eddie, we pulled that stunt on our auditors at Peat Marwick Main (now KPMG). They were dumb enough to believe the results of our internal investigation clearing us of wrongdoing. Now it seems that in certain instances, the Feds are drinking the same Kool-Aid as Crazy Eddie's former auditors. It's INSANE!

Yesterday, David S. Hilzenrath from the Washington Post reported:

As the U.S. government steps up investigations of companies suspected of paying bribes overseas, law enforcement officials are leaving much of the detective work to the very corporations under suspicion.

The probes are so costly and wide-ranging that the Justice Department and Securities and Exchange Commission often let the companies investigate themselves and then share the results.

The strategy is especially common in cases of foreign corruption but also extends to domestic investigations involving issues as varied as health-care fraud and shady accounting.

The corporations, sometimes at the request of the government, hire teams of lawyers and accountants to interview employees, gather electronic records and sift through documents. The government reviews the results and decides whether further legwork is warranted — and, ultimately, whether to pursue charges.

The private investigators help determine what evidence the government sees. They typically turn over only a small subset of the many documents they collect. Sometimes the lawyers who conduct the investigation are the same ones who represent the company in negotiations with the government over charges and penalties. [Emphasis added.]

Hilzenrath asked one insider about the government's reliance on internal investigations:

What prevents the internal investigators from airbrushing the facts or, say, omitting evidence that might implicate the chief executive?

“You mean other than integrity?” one former federal prosecutor replied. “Very little.” The former prosecutor, who now works on internal investigations, spoke on the condition of anonymity to avoid having his comments used against him in future cases. [Emphasis added.]

Further, Nathan Koppel reported in the Wall Street Journal Blog that:

In a recent proposal explaining how it plans to act on tips from corporate insiders and whistleblowers, the SEC said that it may “give the company an opportunity to investigate the matter and report back.”

“This has been the approach of the Enforcement staff in the past, and the Commission expects that it will continue in the future,” the agency said.

Are the people running the Justice Department and the Securities and Exchange Commission completely out of their minds? They should know better than to ever rely on anyone's “integrity” when conducting an investigation. White-collar criminals cloak themselves in a “wall of false integrity” to increase the comfort level of their victims and avoid action from law enforcement agencies and regulators. While the Justice Department and SEC are busy relying on the integrity of internal investigations by companies suspected of wrongdoing, they often ignore crucial information provided by whistleblowers.

For example, Bernie Madoff used his stature as the former Chairman of NASD to lure investors into a sense of false security and to avoid action by regulators. The Securities and Exchange Commission gave Bernie Madoff the benefit of any doubt and ignored warnings from whistleblower Harry Markopolos that Madoff was conducting a massive Ponzi scheme.

Like Madoff, sub-prime lender NovaStar Financial apparently used the "wall of false integrity" tactic to successfully avoid action from regulators, too. Last Sunday, Gretchen Morgenson and Joshua Rosner from the New York Times reported how the SEC repeatedly ignored warnings by short-seller Marc Cohodes about aggressive accounting tactics used by NovaStar to cook its books. The company hired Lanny Davis, former special counsel to President Clinton during the Monica Lewinski scandal to "run interference" with regulators:

So in February 2003, Mr. Cohodes started corresponding with the S.E.C. about NovaStar. He began “throwing things over the wall,” as he put it, to Amy Miller, a lawyer in the division of enforcement. 

[Snip]

Taking his pencil to NovaStar’s statements, Mr. Cohodes found a raft of red flags. “They made their numbers look however they wanted to,” he recalls. “Not even remotely realistic.”

One tactic gave the company lots of leeway in how it valued the loans held on its books. Another allowed it to record immediately all the income that a loan would generate over its life, even if that was decades. This accounting method ignored the possibility that some of the company’s loans might default. NovaStar assumed that losses on all of its loans would be nonexistent.

[Snip]

The company hired Lanny Davis, a well-connected lobbyist and public relations operative, to run interference. Mr. Davis was used to operating in a crucible; he had been special counsel to President Bill Clinton during the Monica Lewinsky scandal. [Emphasis added].

Ultimately, NovaStar's stock price collapsed and shareholders unnecessarily lost over a billion dollars because of SEC inaction:

At the end of 2009, NovaStar management concluded that the company’s financial reporting was “not effective.”

NovaStar had, in essence, confirmed what Mr. Cohodes had been telling the S.E.C. all along. The company’s financial reports just couldn’t be trusted. [Emphasis added}

The Feds listened to Lanny and ignored Cohodes.

Our government is making it easier for criminals to commit white-collar crime. The Obama Administration is permitting the Justice Department and SEC to rely on internal investigations by suspected wrongdoers. Republican Congressman Darrell Issa wants to gut the SEC to make it completely ineffective in policing the capital markets. Republican Presidential hopeful Michelle Bachmann wants to completely repeal Dodd-Frank, so white-collar criminals will never have to worry about potential whistleblowers. Small cap companies have been exempted from certain internal control provisions of Sarbanes-Oxley .The Supreme Court has narrowed the definition of honest services fraud. New York City has ten times more cops than the SEC has employees and twice as many cops than Special Agents employed by the FBI.

I should have been a criminal today, rather than in the 1980s. I could have avoided prosecution for my crimes. Maybe, it's time to end my retirement from white-collar crime?

Written by,

Sam E. Antar

Recommended reading

Reuters - Special Report: From Hannibal Lecter to Bernie Madoff by Matthew Goldstein

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

Gary Weiss - Novastar and Overstock in the News

Crowe Horwath - Putting the Freud in Fraud: Focus on the Human Element, Catching a Crook Isn't Only a Numbers Game By Jonathan T. Marks, CPA/CFF, CFE, CITP

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

Recently, I exposed GAAP violations by Overstock.com which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com 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 Overstock.com 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.

Patrick Byrne Pockets $3.1 Million from Dumping Overstock.com Shares While Trying to Stave Off Possible SEC Enforcement Action

Patrick Byrne intoxicated after drinking too much alcohol

Amidst an ongoing Securities and Exchange Commission investigation into financial reporting violations by Overstock.com (NASDAQ: OSTK), CEO Patrick Byrne's 100% controlled High Plains Investments LLC dumped 140,000 company shares and collected over $3 million in proceeds during the last several days, according to SEC filings. This marks the first time that Patrick Byrne has ever sold any Overstock.com shares under his control, not a bullish signal to investors.

Meanwhile, the company is desperately trying to stave off an enforcement action by the SEC. Before I discuss that issue, let's review some recent history.

Why the SEC is Investigating Overstock.com

So far, each and every initial financial report for every reporting period issued by Overstock.com from the company's inception in 1999 to Q3 2009 violated GAAP or some other SEC disclosure rules. Likewise, every single audit report issued by PricewaterhouseCoopers, Overstock.com's former auditors, from 1999 to 2008 was wrong turned out to be false, too. In addition, information uncovered by investigative journalist Roddy Boyd shows that managment deliberately concealed material weaknesses in internal controls over financial reporting as far back as 2005.

More recently, during 2009, I detailed how Overstock.com deliberately violated Generally Accepted Accounting Principles (GAAP) in recognizing income for recoveries from underbilled and overpaid fulfillment partners by improperly claiming that a “gain contingency” existed when it did not actually exist under accounting rules.

Under GAAP, Overstock.com is required to recognize income from underbilling and overpaying its fulfillment partners when such income was actually earned (before Q3 2008). By improperly claiming that a “gain contingency” existed, Overstock.com improperly recognized income as monies were recovered from the underbilled and overpaid fulfillment partners in future reporting periods on a non-GAAP cash basis. Therefore, Overstock.com improperly shifted income earned before Q3 2008 to future accounting periods (Q4 2008 to Q3 2009). In Q4 2008, Overstock.com improperly reported a $1.014 profit, instead of a $750k because of GAAP violations.

Creepy Judd Bagley

I notified both the company and the SEC of Overstock.com's improper accounting for recoveries from underbilled fulfillment partners and later on, for overpaid fulfillment partners. Instead of properly complying with GAAP, Overstock.com CEO Patrick Byrne defamed me in various quarterly conference calls with analysts and investors, sent his paid internet stalker Judd Bagley to interfere in my divorce proceedings, and even had Bagley and spy on my family and other company critics (including our minor family members) using a fake Facebook name.

In September 2009, the SEC re-opened a previously closed investigation of Overstock.com after I notified them of violations of Generally Accepted Accounting Principles (GAAP) in the company's reporting of recoveries from previously underbilled fulfillment partners.

In November 2009, Overstock.com fired Grant Thornton as its auditors after they recommended that the company restate its financial reports to correct GAAP violations, as I previously called for in my blog. In December 2009, KPMG replaced Grant Thornton as Overstock.com's auditors.

On January 29, 2010, Overstock.com finally admitted that its accounting for recoveries from underbilled and overpaid fulfillment partners was "inappropriate" and that no gain contingency existed, as I previously reported in my blog.

On March 31, 2010, Overstock.com's 2009 10-K report restated the company's Q4 2008 financial report to show a properly reported net loss rather than an improper net profit, as I correctly said it should in my blog more than a year earlier. However, a few days later, Patrick Byrne falsely claimed to AP reporter Paul Foy that "Overstock's accounting errors were generally conservative...and gave the company no advantage."

In its Q1 2010 10-Q report, Overstock.com reported continuing material weaknesses in internal controls.

Overstock.com's Current Discussions with SEC

According to certain sources, Overstock.com is currently trying to stave off an enforcement action from the Securities and Exchange Commission by claiming that management had no "intent" to violate GAAP and other SEC disclosure rules and that its history of financial reporting problems was a result of incompetent staffing. I find it hard to believe that any rational person the SEC could be so stupid as to believe such nonsense from company paid lawyers.

How can Overstock.com claim a "lack of intent" when its management defiantly failed to promptly correct GAAP violations when notified by me and later fired Grant Thornton as its auditors, rather than correct those GAAP violations? Worse yet, the company engaged in a vicious campaign to stalk, harass, and intimidate me and other media critics. The company even spied on me, other critics, and our families.

If the SEC fails to take action against Overstock.com, it will send a clear message that whistleblowers who correctly point out securities law violations are still not welcome despite the regulator's widely publicized bungled investigation of Bernie Madoff, after they ignored whistleblower Harry Markopolos.

As I said in my last open letter to Chairperson Mary Schapiro, "The SEC has an excellent chance on its second investigation of Overstock.com to regain that lost public confidence by bringing a successful enforcement action against Overstock.com, its Audit Committee, and its management team for securities law violations, including Rule 10b-5."

Written by:

Sam E. Antar

Recommended Reading (Especially for the SEC Commissioners, Lawyers, and Investigators)

Gary Weiss - Patrick Byrne Dumps His Overstocked Overstock Shares by Gary Weiss

The Big Picture - Long OSTK, Short Byrne by Barry Ritholtz
May 26, 2010: Going Concern - Why Did Patrick Byrne Sell $3 million in Overstock.com Shares? by Caleb Newquist

May 26, 2010: Jr Deputy Accountant - It's Not at All Suspicious That Patrick Byrne Just Unloaded a Bunch of Overstock Shares by Adrienne Gonzalez

Selling America Short: The SEC and Market Contrarians in the Age of Absurdity by Richard Sauer (Wiley 2010) - Chapter 12: The Overstock Flame Wars

Stockwatch - Overstock.com faces another shoddy accounting challenge by Lee M. Webb

Crain's New York Business - Crazy Like a Fox by Aaron Elstein (Download)

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, 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.

I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven. However, I doubt that I will ever get into heaven anyway, because my sins are unforgivable. I will probably end up joining corporate miscreants such as fifth rate crooks like Patrick Byrne in hell.

In any case, exposing Overstock.com's financial reporting violations is a lot of fun and analyzing the company's financial reporting is a forensic accountant's wet dream.

Straight Talk about Brutality of White Collar Crime from a Convicted Felon

Updated to include another interview

If you want to truly understand the brutal nature of white collar crime in all of its gory detail, please listen to my videotaped interview below that is featured on the Con Artist Hall of Infamy website (here). In part one and two of a series of chilling interviews with journalist Becca MacLaren, I discuss the basic tactics that white collar criminals use to exploit and scam their victims:

White collar criminals consider your humanity, ethics, and good intentions as a weakness to be exploited in the execution of their crimes.

White collar criminals measure their effectiveness by the comfort level of their victims.

White collar criminals build a wall of false integrity around them to gain the trust of their victims.

Sam Antar Interview, Part 1: The Rules of Criminality



Sam Antar Interview, Part 2: Humanity, or the lack thereof
.


The Con Artist Hall of Infamy was founded by Warren Hellman and Arthur Rock, two billionaires with a fascination of white collar crime and a passion dedicated towards educating the public about the cold-blooded brutality of criminality.

The interview was videotaped last March during my visit to teach at Stanford Law and Business Schools. In future blog posts, I will show more video clips of my interview with Becca MacLaren on white collar crime.

Special thanks to the Con Artist Hall of Infamy and Stanford for inviting me to share my views on white collar crime.

Interviewed by "Fraud Girl" from Simoleon Sense Blog

Recently, I was contacted by a very bright forensic accounting blogger who writes under the pseudonym "Fraud Girl" for the Simoleon Sense blog, which is administered by another bright analyst and investigative blogger Miguel Barbosa. "Fraud Girl" wanted to know about my mindset as a forcibly "retired" criminal. A full transcript of the interview can be read here.

Here's a sample Q & A from the interview:

Question: How can people go acquire the experience to really understand financial criminals? Do courses help? Is it just real life experience? What will help forensic accountants get through it?

Answer: It’s a combination of both. For example, The Going Concern blog recently did a thing about what is takes to become a forensic accountant. The problem is before you even get to the skill set to be a good forensic accountant you need to get a double set of iron clad balls and triple thick skin because criminals fight back. We don’t play fair. We have no respect for you. We have no respect for your laws. We don’t have respect for your customs. In fact, your laws and customs make it easier for us to commit our crimes. It’s a paradox. The more humane the society is, the easier it is to commit the crimes. Humanity limits your behavior but it doesn’t limit our behavior because we’re immoral human beings.

[Snip]

Question: It’s a huge problem. The cases I’m looking into are getting bigger and are getting worse…

Answer: You’re seeing most of these cases now because of a faltering economy. If the economy were good you wouldn’t even have known who Harry Markopolos was. He would still be writing letters to the SEC and they would still be ignoring him.

Until society learns about the psychology of white collar crime and the tactics used by criminals to defraud their victims, society is doomed to be victimized over and over again by ruthless thugs like I was, as the criminal CFO of Crazy Eddie back in the day.

Special thanks to "Fraud Girl" and Miguel Barbosa for seeking my input on white collar crime.

Written by:

Sam E. Antar

Recommended Reading

Going Concern: Sam Antar at Stanford: Jr. Deputy Accountant Gets a Live Dose of the Criminal Mind by Adrienne Gonzalez

White Collar Fraud: The Real Reason Behind Danny DeVito’s Crazy Eddie Movie Project Meltdown from Eddie Antar’s Cousin and Criminal CFO 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 investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, and here).

My pro bono work for the federal government is a freebie to law enforcement in order to help 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. Anything that I may do in helping law enforcement does not undo any of my heinous crimes. I plan on frying in hell with other white collar criminals for a very long time.

Open Letter to the Securities and Exchange Commission (Part 8): Bring Enforcement Action Against Overstock.com for False and Misleading Disclosures

The SEC must get Patrick Byrne sober

Updated at 9:42 PM Eastern

To Mary Schapiro (Chairperson of the Securities and Exchange Commission):

I respectfully recommend that the Securities and Exchange Commission bring an enforcement action against Overstock.com (NASDAQ: OSTK) for violations of securities laws and retaliation against its critics. Otherwise, the SEC will send a clear message that violations of Generally Accepted Accounting Principles (GAAP), making false and misleading statements to investors, and retaliation against critics who uncover financial reporting irregularities will be tolerated and go unpunished.

On January 29, 2010, Overstock.com disclosed that the company was restating its financial reports for the third time in three years. In Overstock.com's recently filed 2009 10-K report, the company falsely tried to place the entire blame for its recent restatement of financial reports on the following:

We lacked a sufficient number of accounting professionals with the necessary knowledge, experience and training to adequately account for and perform adequate supervisory reviews of significant transactions that resulted in misapplications of GAAP.

Information technology program change and program development controls were inadequately designed to prevent changes in our accounting systems which led to the failure to appropriately capture and accurately process data.

I doubt that Overstock.com, led by CEO Patrick M. Byrne, will ever come clean with investors and admit that they deliberately violated GAAP and other SEC disclosure rules. As I will summarize below, the above disclosure omits material information in violation of Rule 10-5.

In addition, Overstock.com made false disclosures and certain corporate officers made false claims in violation of Rule 10b-5 to support the company's improper accounting for recoveries from underbilled and overpaid fulfillment partners. The company deliberately failed to correct those GAAP violations, after being notified by me.

Instead, CEO Patrick Byrne orchestrated a vicious retaliation campaign against me by smearing me, interfering in my divorce, and pretexting me, my family, and other critics. Overstock.com fired Grant Thornton as its auditors after they recommended that the company restate its financial reports to comply with GAAP, as I recommended.

If anyone at Overstock.com should be held fully responsible for the company's GAAP violations, it is the Audit Committee, CEO Patrick Byrne, and company President Jonathan E. Johnson. They all kept their positions at Overstock.com, while apparently scapegoating former CFO David Chidester and former Treasurer Rich Paongo, both who are no longer employed by the company.

From its inception in 1999 to date, each and every initial financial report for every reporting period has violated GAAP or some other SEC disclosure rule. Overstock.com even increased bonuses in 2009, while KPMG, its auditors, cited the company for material weaknesses in internal controls over financial reporting.

Brief Background

Starting on February 4, 2009, I correctly reported in my blog that Overstock.com violated Generally Accepted Accounting Principles (GAAP) in its accounting for recoveries of amounts due from underbilled fulfillment partners. Overstock.com should have restated its financial reports to reflect income when it was actually earned from those fulfillment partners, less a reasonable estimate for uncollectable amounts (See SFAS No. 154 and SFAS No. 5).

Instead, Overstock.com improperly deferred income that it earned but underbilled its fulfillment partners during prior reporting periods (Q3 2008 and before) by moving such income to future reporting periods (Q4 2008, Q1 2009, Q2 2009, and Q3 2009). In other words, Overstock.com took income that should have been reported in prior reporting periods (Q3 2008 and before) and moved it to future reporting periods (Q4 2008 and later) to materially overstate its financial performance in those later reporting periods. In effect, Overstock.com created an illegal "cookie jar" reserve to inflate its future financial performance.

I correctly reported that Overstock.com ridiculously claimed that the collection of the entire amount of its underbillings (every single penny) “was not assured” and instead falsely claimed that a "gain contingency" existed, rather than make a reasonable estimate of uncollectable amounts as required under SFAS No. 5.

I correctly reported that Overstock.com's improper accounting for recoveries from underbilled fulfillment partners resulted in the company reporting Q4 2008 profit, rather than a properly reported Q4 2008 loss.

Starting in February 2009, I sent emails to Overstock.com that were cc'd to the Securities and Exchange Commission, expressing my concerns about the company's GAAP violations. Instead of listening to me in February 2009, Overstock.com continued to violate GAAP in its Q1, Q2, and Q3 2009 financial reports.

Note: More details in: 08/05/09: Open Letter to the Securities and Exchange Commission: Stop Overstock.com GAAP Violations Now!

In September 2009, the SEC Enforcement Division re-opened its investigation of Overstock.com followed by a parallel probe by the SEC Division of Corporation Finance.

In October 2009, the SEC Division of Corporation Finance discovered that Overstock.com overpaid a fulfillment partner $785,000 during 2008. The company recovered that overpayment in Q1 2009 and improperly reported the overpayment recovery as income in that same quarter, rather than properly restate its 2008 financial reports to correct that error. Overstock.com used the same false "gain contingency" excuse again to justify the company's improper accounting treatment for its recovery of the overpayment.

Overstock.com improperly concealed the recovery of the overpayment by including that amount in recoveries from underbilled fulfillment partners in Q1 2009 instead of separately disclosing the overpayment recovery in its financial reports.

In November 2009, Overstock.com even fired Grant Thornton as its auditors and both Patrick Byrne and Jonathan Johnson publicly vilified them when they recommended that the company restate its financial reports to comply with GAAP, as I recommended in my blog and emails to Overstock.com that were cc'd to the Securities and Exchange Commission.

On January 29, 2010, Overstock.com finally admitted that its accounting for recoveries from underbilled and overpaid fulfillment partners was "inappropriate" and that no gain contingency existed, as I previously reported in my blog.

On March 31, 2010, Overstock.com's 2009 10-K report restated the company's Q4 2008 financial report to show a properly reported net loss rather than an improper net profit, as I correctly said it should in my blog more than a year earlier.

In other words, this convicted felon, who Patrick Byrne has called on many occasions "Sam the crook", was right about Overstock.com's GAAP violations and the company's former auditors PricewaterhouseCoopers, its Audit Committee, and its management team were all wrong.

Overstock.com Corporate Sponsored Campaign to Intimidate Me and Family Members

Soon after I started exposing Overstock.com's recent GAAP violations in my blog, Patrick Byrne responded by escalating his vindictive corporate sponsored retaliation campaign against me, other critics who agreed with my correct analysis, and others he perceived as being part of his deluded conspiracy theory involving the "Sith Lord."

In April 2009, Patrick Byrne sent his paid cyberstalker Judd Bagley to interfere with my divorce proceeding and attempted to blackmail me into settling that case and even tried to contact my ex-spouse in an attempt to intimidate me.

Starting around May or June 2009 Judd Bagley "Facebook friended" me, journalists, bloggers, and other critics on Facebook to collect personal information on them and their family members and violated their terms of service by using a false identity. Bagley even attempted to "Facebook friend" my son and family members of other critics, too.

In December 2009, Judd Bagley posted the names of over 7,000 critics and their "Facebook friends" which included family members under age 18 (including my minor relatives) on Byrne's funded and controlled Deep Capture website as part of his pretexting scheme to harass and intimidate Overstock.com's critics.

Note: More details provided in: How Patrick Byrne Stalked Critics and the Media on Facebook by Gary Weiss

I tried to call into Overstock.com's quarterly conference calls to ask relevant questions about accounting issues, only to be refused access and ridiculed by Byrne on those same calls.

False Statements and Innuendo Made by Certain Corporate Officers to Justify Overstock.com's Improper Accounting

Soon after I correctly indentified certain GAAP violations by Overstock.com, Patrick Byrne and Jonathan Johnson made certain false statements to investors, as described below.

On February 6, 2009, Patrick Byrne responded to my original February 4 blog post identifying the GAAP violations described above on the InvestorVillage message board by claiming that:

Antar's ramblings are gibberish. Show them to any accountant and they will confirm. He has no clue what he is talking about.

A September 25, 2009, Salt Lake Tribune article quoted Patrick Byrne as saying:

"Gary Weiss and Sam Antar are goniffs," Byrne declared, using a yiddish term that he says means "a con man, a hustler and a scoundrel."

If the SEC is listening to them, their next step is to let Bernie Madoff write their indictment of me." Byrne was referring to the mastermind, now in prison, of a multibillion-dollar fraud whose case helped show how laissez faire Wall Street regulators had become.

On November 18, 2009, during a conference call with analysts and investors, Patrick Byrne falsely claimed:

In fact, we as I understand it, this doesn't change any positive quarter to a negative quarter or any negative quarter to a positive quarter.

In a November 25, 2009 Salt Lake Tribune article, company President Jonathan Johnson was quoted as saying:

None of these changes that they [Grant Thornton] are talking about, or that people at the SEC are now asking about, make any of our quarters go from negative to positive or from positive to negative.

As it turns out, all of the above explanations claimed by Patrick Byrne and Jonathan Johnson were false, misled investors into believing that Overstock.com properly complied with GAAP, and violated Rule 10b-5. The company actually lost money in Q4 2008 rather than make a profit as previously claimed. Overstock.com deliberately violated GAAP and as evidenced by its ridiculous "gain contingency" claim, its retaliation against me and other critics, and false statements made by Byrne and Johnson to support the company's improper accounting treatment for recoveries from underbilled and overpaid fulfillment partners.

Conclusion

As the criminal CFO of Crazy Eddie, I respected the SEC as an adversary, even as it brought me to my knees. Unfortunately, the public has lost confidence in the SEC because of its failure to listen to Harry Markopolos about Bernie Madoff and David Einhorn about Lehman Brothers and Allied Capital. The SEC has an excellent chance on its second investigation of Overstock.com to regain that lost public confidence by bringing a successful enforcement action against Overstock.com, its Audit Committee, and its management team for securities law violations, including Rule 10b-5.

In addition, you have an excellent opportunity to show that issuer retaliation by public companies against critics will not be tolerated. If you fail to address that issue, you are warned that America will be deprived of future independent whistleblowers like Ralph Nader and books like "Unsafe at Any Speed."

From a former adversary and respectfully,

Sam E. Antar

Update: Associated Press reporter Paul Foy permitted Patrick Byrne to continue lying to investors in an article published today about Overstock.com's GAAP violations, even though I documented Byrne's lies when interviewed by Foy and in our emails. The article states:

Byrne, who owns nearly 30 percent of the company's shares, says Overstock's accounting errors were generally conservative. The latest involved 0.1 percent of revenue and gave the company no advantage, he said.

"No advantage," he says? That is a flat out lie and Foy permitted Byrne to say it unchallenged in the article, even though he had information from Overstock.com's own SEC filings and from me showing that Byrne lied.

Nowhere does the article mention that Overstock.com's GAAP violations enabled the company to improperly report a Q4 2008 net profit, rather than a properly reported net loss. The article fails to mention that Overstock.com restated its Q4 2008 financial report to correct those GAAP violations and changed its previously reported net profit to a properly reported net loss.

Patrick Byrne went on to personally attack me. The AP article quotes Byrne as saying:

Byrne responds that "it's like hearing Bernie Madoff say I'm a bad guy."

No matter what Patrick Byrne calls me whether it is "Sam the crook" or "Bernie Madoff", this convicted felon was right about Overstock.com's GAAP violations and the company, its Audit Committee, its management including Byrne, and its auditors were all dead wrong.

At the very least, Overstock.com should immediately retract Byrne's false remarks so that investors reading the Associated Press article will not be misled about the real scope of the company's accounting errors.

Patrick Byrne will continue lying to investors unless the SEC puts a stop to his shenanigans and holds him accountable for his actions.

For additional information, please read Gary Weiss blog here and Going Concern blog here.

Note to Readers: Please order "Selling America Short: The SEC and Market Contrarians in the Age of Absurdity" by Richard Saurer and especially read Chapter Twelve: The Overstock Flame Wars.

My previous open letters to the SEC (please note that each letter is based on Overstock.com's deliberately vague, incoherent, and inconsistent, and often contradictory disclosures at the time each one was issued):

08/05/09: Open Letter to the Securities and Exchange Commission: Stop Overstock.com GAAP Violations Now!

11/22/09: Open Letter to the Securities and Exchange Commission Part 2: New Information on Overstock.com's GAAP and SEC Disclosure Violations

11/23/09: Open Letter to the Securities and Exchange Commission Part 3: Overstock.com Lied About Grant Thornton and Concealed Error

11/26/09: Open Letter to the Securities and Exchange Commission Part 4: Patrick Byrne Ignores Real Issues As He Vilifies Grant Thornton

12/14/09: Open Letter to the Securities and Exchange Commission Part 5: Issuer Retaliation Complaint Against Overstock.com

01/03/10: Open Letter to the Securities and Exchange Commission Part 6: Conflicting Disclosures by Overstock.com Reveal Improper Audit Opinion Shopping

02/02/10: Open Letter to the Securities and Exchange Commission Part 7: Why Overstock.com and David Chidester Parted Ways

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, 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.

I do not own Overstock.com securities short or long. My research on Overstock.com and in particular its lying CEO Patrick Byrne is a freebie for securities regulators and the public in order to help me get into heaven, though I doubt that I will ever get there anyway. I will probably end up joining corporate miscreants such as fifth rate crooks like Patrick Byrne in hell.

In any case, exposing Overstock.com's financial reporting violations is a lot of fun and analyzing the company's financial reporting is a forensic accountant's wet dream.