I really didn’t want to get drawn in to the freak show that is Overstock.com. But for my family members showing up on some Deepcapture enemies list, pretexted from Facebook, I never would have cared about these idiots except they were dissing my boy Herb Greenberg — and outstanding investigative journalist and researcher.

Their whole campaign against naked shorting, the bizarre cyberstalking — all of that nonsense has been nothing more than a grand case of misdirection to hide the fact that Overstock has been cooking their books for who knows how long.

Let’s look at what preceded their latest 8k filing with the SEC:

• Price Waterhouse Coopers was fired after 8 years of failed audits;

• Grant Thorton recommended restating financial reports to correct material misstatements; They were fired soon thereafter;

• Grant Thorton files letter with SEC stating material misstatements ont he part of Overstock (SEC)

• CFO resigned January 20th; (SEC)

• SEC begins examining Overstock’s financial reporting;

And where has that led us?

• In the most recent 8k, Overstock admits having to restate quarterly financials from Q1 2008 to Q3 2009;

I suspect there will be more shoes to drop in the future. I also have a suspicion that a few execs and former employees will be getting fitted for state issued orange jumpsuits.

~~~

8k filing after the jump . . .

Item 4.02(a). Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On January 29, 2010, the Audit Committee of the Board of Directors of the Company concluded, based on the recommendation of management, that the Company’s consolidated financial statements for the fiscal year ended December 31, 2008 contained in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2008 and the consolidated interim financial statements for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 contained in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 each as filed with the Securities and Exchange Commission, should be restated to correct errors related to:

·                  Operational errors in the amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time.  Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from the vendor.  Once discovered, the Company applied “gain contingency” accounting for the recovery of such amounts, which it has now determined was an inappropriate accounting treatment. Correction of these errors is expected to shift approximately $1.7 million of income recognized in fiscal year 2009 back to fiscal year 2008.

·                  The accounting for certain of the Company’s share-based compensation plans.  Specifically, the Company incorrectly amortized the expense related to restricted stock units based on the actual three year vesting schedule rather than a three year straight line amortization and applied an outdated forfeiture rate in calculating its expense under the plans. Correction of these errors is expected to decrease income for fiscal year 2008 by approximately $350,000, and to decrease income for the nine months ended September 30, 2009 by approximately $900,000.

·                  Other miscellaneous corrections and reclassifications, none of which were material either individually or in the aggregate.

PricewaterhouseCoopers LLP, KPMG LLP, and management are still in the process of reviewing these corrections and therefore these amounts could change.

Accordingly, the consolidated financial statements for the fiscal year ended December 31, 2008 and for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 in the Reports identified above should no longer be relied upon. Management and the Audit Committee have discussed this matter with PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm for 2008 and KPMG LLP, the Company’s independent registered public accounting firm for 2009, noting that KPMG has not completed its SAS 100 reviews for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009. The Company intends to file amended Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009, and amended results for fiscal year 2008 (reported within its Form 10-K for fiscal year 2009) as soon as practicable. The Company expects that these restatements will have an immaterial impact on revenue and a material impact on net income/loss reported in the consolidated financial statements in these Reports.

As previously disclosed in a January 14, 2010 Form 8-K/A filing Patrick Byrne, the Company’s Chief Executive Officer, had stated to The New York Observer, “that the company is about to report its first annual profit.”  The Company continues to believe that it will report positive net income for fiscal 2009.

The Audit Committee has instructed management to prepare a comprehensive review and analysis of the causes of the errors identified above.  The Audit Committee has further instructed management to submit to the Audit Committee a comprehensive detailed plan for the remediation of the underlying cause of the errors and for the implementation of stricter policies to avoid errors or deficiencies in accounting procedures and application going forward.

These restatements are expected to address all outstanding issues raised in the comment letter dated November 3, 2009 that the Company received from the Division of Corporation Finance of the Securities and Exchange Commission.  The Company continues to cooperate with the previously-announced investigation described in the notice dated September 15, 2009 from the Division of Enforcement of the Securities and Exchange Commission stating that the Commission is conducting an investigation concerning Overstock’s previously-announced restatements of its financial statements in fiscal 2006 and fiscal 2008 and other matters.

In connection with the restatement of the Company’s fiscal 2008 consolidated financial statements, management has reassessed the Company’s controls and procedures including internal control over financial reporting as of December 31, 2008.  Management has concluded that there was a deficiency in the operating effectiveness of the Company’s controls in place related to accounting for billings to drop ship fulfillment partners which constituted a material weakness.  Accordingly, management’s report on internal control over financial reporting for fiscal 2008 can no longer be relied upon. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Certain statements contained in this Form 8-K include statements that are “forward-looking statements,” including statements regarding the anticipated adjustments to the Company’s prior period financial statements. There are risks that the Company faces that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company. There also may be additional risks that the Company does not presently know or that it currently believes are immaterial which could also impair its business and results of operations. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information regarding factors that could materially affect results and the accuracy of the forward-looking statements contained herein may be found in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2008 and in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009,  June 30, 2009 and September 30, 2009, subject, in each case, to the matters described in this Form 8-K.

Category: Corporate Management, Earnings

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Overstock.com to Restate Earnings”

  1. Letter to SEC in resposne to false statements in Overstock 8k
    http://sec.gov/Archives/edgar/data/1130713/000110465909066580/a09-34089_2ex16d1.htm

    Dear Sir or Madam:

    Grant Thornton LLP (“Grant Thornton” “We” or our “Firm”) has read Item 4.01 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009. We do not agree with statements concerning our Firm.

    Grant Thornton did not issue an audit opinion on the Company’s financial statements. Grant Thornton, therefore, did not take a position as to whether the Company’s financial statements for the year ending December 31, 2008 should be restated. That determination must be made by the Company. Further, paragraph 4 references a report on the Company’s consolidated financial statements for the year ending December 31, 2009. As we have not performed an audit of the Company’s financial statements for any period, this reference is incorrect.

    On March 23, 2009, Grant Thornton was engaged to review, not audit, the Company’s interim financial statements to be filed on Form 10-Q for the quarter ended September 30, 2009. Review procedures are substantially less in scope than an audit and consist principally of performing analytical procedures and making inquiries of persons responsible for financial and accounting matters.

    We disagree with the Company’s statement in paragraph 7 “that upon further consultation and review within the firm, Grant Thornton revised its earlier position” regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error. Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.

    Grant Thornton LLP

    U.S. member firm of Grant Thornton International Ltd

    ~~~

    We have also read Item 4.02 of Form 8-K of Overstock.com, Inc. (“the Company”) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP. Such modifications are necessary due to the Company having reduced its cost of goods sold in the first quarter of 2009 by receipt of a refund of an overpayment to a fulfillment partner. Further, the Company had additional items which we discussed that were still unresolved at the time we were dismissed, that could have a material impact on the first and second quarter financial statements for 2009. These items are identified by the Company in Paragraph 5 in item 4.01 of the Company’s Form 8-K.

    Very truly yours,

  2. Mannwich says:

    But I’m sure they’re certainly not the only ones. The incentives to cheat are just too great, especially when the powers that be want an up market every day.

    Will they be allowed to cyberstalk and pretext in prison?

  3. Sam says:

    Wow, this was quite insightful — 2 years ago!

    Overstock.com and PricewaterhouseCoopers: Errors in Submissions to SEC Division of Corporation Finance
    http://whitecollarfraud.blogspot.com/2008/05/overstockcom-and-pricewaterhousecoopers.html
    Monday, May 19, 2008

    I guess its true — it takes a criminal mind to spot another criminal mind . . .

    This evening Overstock.com announced that the company is restating all financial reports from 2008 to Q3 2009 as a result of material violations of Generally Accepted Accounting Principles (GAAP) and other SEC disclosure rules. This announcement vindicates my reporting of a financial statement manipulation scheme by Overstock.com and its unprincipled management team, led by CEO Patrick M. Byrne.

    Starting in February 2009, I contacted both Overstock.com (NASDAQ: OSTK) and the Securities and Exchange Commission and reported to them that the company had set up an illegal “cookie jar” reserve to materially inflate its future financial performance from Q4 2008 to Q3 2009.

    Instead of properly restating its financial reports to correct its intentional breach of Generally Accepted Accounting Principles and other SEC disclosure rules, Overstock.com CEO Patrick Byrne responded by orchestrating a massive corporate sponsored retaliation campaign against me and other critics who agreed with my findings.

    In addition, Patrick Byrne, company President Jonathan Johnson, former CFO David Chidester, and others blatantly lied to and misled shareholders in an attempt to cover up their financial reporting manipulation scheme.

    In September 2009, the SEC re-opened a previously closed investigation of the company in response to my reports. In December 2009, Overstock.com fired Grant Thornton as its auditors and vilified them when they agreed with my analysis and told them to restate their financial reports to comply with GAAP. The company filed an “unreviewed” Q3 2009 10-Q report and faces de-listing by NASDAQ.

    Today’s news is a complete vindication of my analysis of Overstock.com’s financial reports and shows that the company wilfully engaged in a financial reporting manipulation scheme. The company is restating its financial reports to correct GAAP violations, exactly as I have recommended in this blog. To date, every single initial financial report issued by Overstock.com through out the company’s entire existence has violated GAAP or some other SEC disclosure rule.

    I urge the Securities and Exchange Commission Division of Enforcement to bring civil charges against Overstock.com, Patrick Byrne, and other members of the company’s management team for securities fraud. In addition, I recommend that the SEC make a criminal referral to the Department of Justice and that Overstock.com’s management be prosecuted for their financial frauds on investors and retaliation against their critics.

    Special thanks to all those people who stood by me. I will provide more details in my blog, soon.

  4. Dennis says:

    what a bizarre bunch-o-creeps

  5. wunsacon says:

    [in a thick scottish brogue]: “Suck on it, Byrne!”

  6. Machiavelli999 says:

    Free markets work out by themselves. No regulation is needed.

    If you propose any regulation the Dow might drop a few points hence you can’t propose any regulations

    —-sarcasm off—

  7. [...] on any who question his accounting may be all fun and games, it is pure diversion. What matters is the financial reports. And Byrne’s guilt is consistently written all over [...]

  8. [...] The loudest complainer of all, Overstock.com and their bizarre CEO, Patrick Byrne. The upshot, they have been cooking their books for years, just like the short sellers were [...]

  9. People of State of California vs Overstock.com Inc says:

    The DA sued Overstock

    People of State of California
    v.
    Overstock.com Inc.; Does
    11/17/2010 RG10-546833
    (Oakland)

    Complaint for civil penalties and injunctive relief. The defendant makes misleading advertising claims about its prices by listing the comparative “List Price” or “Compare At” price at a level that is actually the “highest price” for a product rather than the prevailing market price. The defendant promises the lowest prices when it actually sells products at higher prices than many merchants.
    Free download< http://www.courthousenews.com/MotherShip/Subscribers/downloadform.aspx?FullTextUploadId=898547>

    Nancy O’Malley
    District Attorney of Alameda County