Conference call participants:
David Chidester – Overstock.com, Inc. SVP Finance
Dr. Patrick Byrne – Overstock.com, Inc. Chairman, CEO
Jason Lindsey – Overstock.com, Inc. President, COO

Translator:
Tracy Coenen – Fraud Investigator

On with the show…

David Chidester: Total revenue for the quarter was down 6% to $149 million. This was an improvement in growth from the first quarter when sales were down 11%.

Translation: We did badly. But less badly than last quarter. Better badly, if you will.

David Chidester: Gross margin expanded to an all-time high of 17.7%, up 370 basis points over last year. The gains in gross margin are due to significant improvement in our direct margins, which are up 610 basis points year-over-year to 16.7%, and an additional 150 basis point improvement in our fulfillment partner margins to 18.1%, both all-time highs. This is also a 170 basis point sequential improvement.

Translation: Catch us if you can! Was it a real improvement? Or did we dip into our reserves for a fake improvement? You’ll never know!

After all the corporate crimes I’ve seen in the last 13-or-so years, it takes a lot to surprise me. Really, it does.

But Patrick Byrne, the nutty CEO of Overstock.com has suprised me. Now, I’d like to think that my threshhold for surprise is pretty high with him. I mean, this is the guy who talks about Sith Lord conspiracies on official, recorded conference calls with Wall Street. So you pretty much have to expect stupid things out of him.

Mortgage insurer MGIC Investment Corp is looking at a huge write-off of a $1.03  billion investment in Credit-Based Asset Servicing and Securitization LLC (C-BASS). The company reported yesterday that its investment in C-BASS has become materially impaired, meaning the value has dropped very significantly.

Insider Post Dramatic Exit

movies are the place where i find escape from guilt and shame. in the movies there is an ending that is not soon forgotten. this post is my exit and will live up to the promise made about providing proof of false earnings. the company released false earnings in the second quarter. the quarter was not successful. you will find all the proof you need from the following cash payments made to the salt lake city based construction company. numbers and accountants confuse me. lies do not. barbara’s computer receives monthly statements from camco. a mailed bill and emailed bill.

in the quarter just released by us the amount of money cash paid for the construction project were a lie. big inflated lie. here is the key to unlocking the lie. two jobs with camco current and ongoing. The 13,046,700 ‘usana 3’ job and the 5,300,000 ‘usana warehouse’ project. total job at headquarters appr 18,346,700.

payments made in 07 to camco from us are much less than we reported. follow these payments. January 802,727 february 885,644 march 790,348 april 748,226 may 852,047 june 303,725. we have paid 10,006,700 for ‘usana 3’ and 303,725 for proj. ‘warehouse’. Still due is 3,040,000 for ‘usana 3’ and 5,000,000 for warehouse. the permit for the warehouse was 27,600 paid in april 07. total paid with both proj. 10,338,025 and amount still due for projects is 8,040,000.

there is a payment now late to camco for 922,000 past due and not paid as buying stock is the preference. the terms used for payments are draws and progressive and retention. stay focused on cash paid out to camco. compare it with what we did pay to camco in the second quarter. much less was paid than what we said they received. something about a graveyard account. you have the proof.

This week’s enlightening posts about [tag]fraud[/tag], [tag]scams[/tag], and schemes…

Digerati Life comments on mortgage fraudster Casey Serin’s lost marriage, as discussed in a mass email he sent out. Apparently, he thinks blogging (and not his poor financial choices and criminal acts) destroyed his marriage.

Leon Gettler at [tag]SOX[/tag] First mentions a new study by the Deloitte Forensic Center which looked at how many “accounting and auditing enforcement releases”(related to financial statement fraud) have been released throughout the years. The releases have gone up since pre-Sarbanes Oxley, which might suggest a problem.

The Better Business Bureau wants you to check your baby’s credit. No, it’s not a joke. Fraudsters can steal a child’s identity just as easily as an adult’s, so it’s important to keep tabs on it.

And Your Credit Advisor follows this up with a post about how many times a person’s personal data may be stolen in just a year.

Wenchypoo blasts someone’s ridiculous idea to turn the United States into even more of a welfare country. The idea is that the government takes away almost all of our earnings, and puts it into accounts for us to be used for certain things such as health, education, etc. Sounds good? Not so much. Socialism doesn’t work. Wealth redistribution doesn’t work. Give people an incentive to work hard and better themselves. That actually works.

And finally… Usana Health Sciences has jumped on the naked short selling conspiracy theory bandwagon. When all else fails and they can’t actually prove any wrongdoing on the part of Barry Minkow and the Fraud Discovery Institute, come up with a lame conspiracy theory and cross your fingers.

Is there something in the water in Utah? Or have Usana Health Sciences executives been lunching with Patrick Byrne, CEO of Overstock.com?

It seems that Byrne’s naked short selling conspiracy theories have worn off on Usana. Usana executives haven’t been caught whispering about Sith Lords yet, but for all we know, it’s only a matter of time.

Byrne is convinced that Overstock’s dwindling stock price is completely unrelated to the fact that Overstock is a poorly run company that can’t turn a profit. No. The problem is naked short sellers of the stock.

The verdict is being read right now in the Frank Jude case in federal court…..

Guilty – Jon Bartlett, Andrew Spengler, and Daniel Mesarik
Not Guilty – Ryan Packard

The charges were violating Jude’s civil rights and committing assault while acting as a police officer.

Is anyone surprised anymore when they learn about another fraud bust, courtesy of Barry Minkow and his Fraud Discovery Institute?

This time it’s Pacific Wealth Management (not related to Pacific Wealth Management LLC of San Dieg0). And it seems that the press has largely ignored this one. The SEC is alleging that Pacific Wealth Management was selling unregistered securities, with the investment offerings ranging from real estate to foreign currency. There were up to 800 investors who mortgaged their houses to invest with this company, and it is believed that they lost millions of dollars.

Here are some excerpts from a letter written to Barry Minkow by Attorney Richard Ackerman, lead counsel for the plaintiffs:

A group called Security Evaluators hacked the iPhone with less than two weeks of part-time work, and has notified Apple of its vulnerabilities.

Here’s how easy they say it is to hack the iPhone:

• A hacker takes over a wireless access point. User of iPhone comes into the area controlled by that access point, and comes under the control of the attacker.
• User of iPhone goes to a website with a forum with improper security. Attacker posts a message on the forum that contains malicious code, and user of the iPhone is vulnerable upon accessing that message.
• Attacker sends a link to an iPhone user, and the user goes to the linked page, which contains the malicious code.

Once an iPhone user is under control of the attacker, the attacker essentially has administrative privileges on the victim iPhone. They can read the address book, the call history, the voicemail, and the SMS messages. All information can be transmitted to the attacker. Passwords could also be sent.

Apple is not currently aware of any real-life compromises of iPhones, but the threat still exists.

That’s right. We are fast approaching the 5 year anniversary of the passing of the Sarbanes-Oxley Act of 2002. Who’s celebrating? Well surely the consultants and accountants who have made a fortune off SOX consulting are celebrating a bit.

Over at Audit Trail, they have some surprising results of a survey of public companies. The results are surprising to me because I generally believe that the cost of Sarbanes-Oxley has far outweighed the little benefit that has been gained. Yet executives apparently think SOX has been positive: