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Overstock CEO and his critics differ over SEC probe

Published September 23, 2009 8:06 pm

Securities » Utah regulators' spokesman won't say why it's looking at the firm's financial restatements.
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Clarification

Financial bloggers Gary Weiss and Sam Antar took exception to Overstock.com CEO Patrick Byrne's quoted expression of opinion about them in a story in Thursday's Money section regarding an SEC probe of Overstock's financial statements. The story did not fully explain that Byrne, Weiss and Antar have often publicly expressed very strong opinions about each other. Blog posts by Weiss and Antar on this subject can be found at garyweiss.blogspot.com and http://www.whitecollarfraud.blogspot.com.

With his critics cheering and the Securities and Exchange Commission staying mum about why it is reopening a probe of Overstock.com, the online retailer's combative CEO is philosophical about his plight.

"Welcome to my life," Patrick Byrne said Wednesday, acknowledging on the one hand that securities regulators are once again looking into the Utah-based firm's restated 2006 and 2008 financial statements, while on the other also giving the SEC its due.

"Any time a company has two restatements in three years, it draws more scrutiny. That looks strange," he said, before quickly adding, "I think this last year has shown that the SEC is under the thumb of Wall Street. There are powerful players ... who can get an investigation started."

One critic, author and financial blogger Gary Weiss of gary-weiss.com, counters that it's not just a matter of the SEC doing its job more diligently in a post-Bernie Madoff world. He argues that the agency acted, in part, because of fellow blogger Sam Antar's campaign to more closely examine Overstock, which has lost money every year for the past decade.

"In the e-mails he sent to the SEC where he copies [everybody, including Byrne], he's been outspoken about Overstock's accounting," Weiss said. "It's hard to conceive what else [the renewed investigation] could be if it wasn't for the things Antar is bringing up. It does make sense."

Antar, a convicted felon-turned white-collar crime fighter, said in a blog posted Wednesday: "The real issue ... is Overstock.com's troubling and consistent pattern of false and misleading financial reports[,] and lies by management about the company's financial performance and compliance with securities laws."

He maintains that "every single financial report" has violated a number of SEC disclosure rules.

Byrne, known for his role in convincing regulators to tighten the screws on a controversial market strategy known as "naked short selling," said Antar's characterization and Weiss' assertion that bloggers rekindled the investigation are wrong.

"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.

The SEC's spokesman in Salt Lake City, Kenneth Israel, would say only, "No comment," Wednesday when asked why his agency relaunched the Overstock.com investigation.

Overstock's financial statements under renewed scrutiny involve the years 2006 and 2008, where the company has acknowledged accounting errors.

"Our accounting department is a bunch of square Utah Eagle Scouts," Byrne said. "Their instructions were to keep the books conservatively. In 2006, our auditors said we were being too conservative."

He said three errors were made -- both "the wrong way" and "the good way," meaning some wrongly boosted the firm's bottom line, while others made it look worse than it was.

Overstock President Jonathan Johnson on Wednesday characterized one of the errors this way: "When we order comforters, we pay the manufacturer and the freight bill. We've been accounting for the freight bill as we paid it, expensing it. We should have been capitalizing the freight bill as we sold the goods, as opposed to when we actually paid it."

Johnson maintains that SEC investigators have told the company that "they are looking at all restatements. Our view is, we made some honest accounting errors. We fixed them. We announced them. We upgraded our accounting staff ... [with] a new chief financial officer at the first of the year, and we have a new controller we hired at the end of last year.

"The SEC is under tremendous pressure to make sure fraud is not being committed," Johnson said. "If that means looking at folks' honest mistakes to root out those trying to commit fraud, I think that's the world we live in now. We've been transparent to our shareholders."

The latter don't seem too disturbed by the reopening of the SEC's investigation. The company's shares, when the market closed Sept. 17 just before Overstock announced the new subpoena, were up 3 cents, closing at $14.87. The next day, they closed at $14.99. On Wednesday, the price closed at $15.60, up 28 cents.

For the year, the price is up about 40 percent.

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Bloomberg News and The Associated Press contributed to this story.