Short Seller Marc Cohodes About Face on Overstock

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BFFs Marc Cohodes and Patrick Byrne

Former hedge fund manager Marc Cohodes has been a long-time critic of Overstock.com and its wacky CEO, Patrick Byrne. The criticism dates back to the days when Cohodes was at Rocker Partners, a company that was sued by Overstock along with research firm Gradient Analytics. In 2005, Cohodes was fingered by Byrne as being part of a “miscreants ball” under the direction of a “Sith Lord.” Yet after more than a decade with a negative opinion of the company and its management, Cohodes recently did an about face.

Is money fueling the change of heart?

Sam Antar, another long-time critic of Overstock, details the Cohodes/Overstock situation nicely on his blog. The crux of the issue is that Cohodes (who has been focused on short selling) took a long position in Overstock in May 2017. A month later, Cohodes met personally with Byrne. In October, Cohodes hyped the company during a presentation at a Grant’s Interest Rate Observer conference, and said that Byrne is now his friend. Continue reading

Overstock.com Report on TheStreetSweeper

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TheStreetSweeper, a site investigates and reports on public companies, released a report last week on Overstock.com. The article, called “Under Surveillance,” said that the company’s stock is massively overvalued. The stock price shot up when Overstock jumped on the cryptocurrency bandwagon:

Overstock’s crypto-fueled stock surge began in August, after the online retailer began allowing shoppers to pay with bitcoin and other digital tokens.

In September, the company announced plans for an exchange to trade tokens.

In October, the CEO announced a subsidiary, tZero, intends to hold an ICO – initial coin offering – from Nov. 15 until Dec. 31. Rather than shares of stock, digital tokens would be issued in the private placement.

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Changes to Sarbanes Oxley?

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This week an article in the Wall Street Journal explored whether there might be some changes coming for Sarbanes Oxley. With President Trump talking about rolling back regulations, business groups that want Sarbanes Oxley softened may get their way.

Sarbanes Oxley requires management to assess the internal controls over financial reporting (those things which are supposed to help prevent errors and fraud). Section 404(b) requires the auditors to evaluate that assessment and provide an opinion on it.

Some say the rule is too costly for smaller companies, while those in support of it say that it has helped ensure financial reporting integrity. Companies with a market cap under $75 million have never had to comply with Section 404(b). Possibly legislation could raise that threshold to $250 million or even $500 million. Continue reading

Executive Prison Sentences and Fraud Deterrence

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One of the key parts of Sarbanes-Oxley, the legislation created to address the problem of massive financial statement fraud at public companies like Enron and WorldCom, was the increased prison sentences for executives participating in fraud.

Supporters of the legislation cheered harsher potential punishment for executives as one of the keys that would help prevent fraud.

Others weren’t so sure that longer prison sentences would really do anything to deter executives who want to commit fraud. If you’ve studied corporate fraud for any length of time, you have seen that fraud by executives is often fueled by feelings of arrogance and entitlement. These are important pieces of the fraud puzzle for executives, and they are part of the reason why executives may be unphased by penalties for committing fraud. Continue reading

When Upper-Level Executives Go Bad

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It’s easy to assume that upper-level executives in companies with fraud scandals were always bad people. By assuming that they were inherently bad people, we don’t have to confront the issues related to trusting people who seemed trustworthy. We don’t have to explore the idea that people can turn bad or choose a bad path or give in to greed.

Yet the fact remains that many executives who committed fraud were at one time considered rising stars with good values. If it was recognized that their ethics were a little lower than preferred, some were still promoted because those in charge believed the results were more important than the methods.

Many may look at executives like Kenneth Lay and Jeffrey Skilling of Enron infamy, and believe that they were bad people long before Enron. The role of the villain is sometimes easy to fill when you have someone like Tyco’s Dennis Kozlowski, who was busy buying unusually lavish items with company funds. Certain people just make good villains in our minds. Continue reading

Herbalife $HLF Doesn’t Want You to See This Video

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Herbalife (HLF) does not want you to see or hear the evidence that the company is nothing more than a recruiting scheme. Audio and video footage was obtained of CEO Michael Johnson talking about how Herbalife is a recruiting company:

It’s the recruiting, meaning bringing new distributors into our company, which is the most vital part of our bloodstream. We bring new distributors in, we grow. It’s that simple. It’s that simple. And the company has built its whole reputation, its whole life, on recruiting.

But every time someone publishes this audio or video footage, Herbalife makes a bogus copyright claim and has it taken down. Continue reading

Herbalife CEO Michael Johnson on Recruiting

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Michael Johnson, CEO of Herbalife, talks about how the company is based on recruiting. ” Today, we’re recruiting. We’re still a recruiting company, and we’ve got to never not be this [again pointing to the word “Recruiting” on the slide behind him]…”

This is the problem with multi-level marketing. The “business” is not about the product. It is about recruiting. The product is merely an inconvenience that is necessary to make it appear that these companies are not pyramid schemes. Read more at Quoth the Raven.

Update: Video is now available here.

Herbalife $HLF CEO Michael Johnson on Recruiting

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michael-johnson-herbalife-recruitingLast week a video was posted to YouTube showing Herbalife CEO Michael Johnson talking about recruiting. Herbalife had the video pulled from YouTube on the basis of copyright infringement. That is most certainly a bogus claim. I’m not an attorney, but I’m smart enough to understand the concept of fair use:

In its most general sense, a fair use is any copying of copyrighted material done for a limited and “transformative” purpose, such as to comment upon, criticize, or parody a copyrighted work. Such uses can be done without permission from the copyright owner. In other words, fair use is a defense against a claim of copyright infringement. If your use qualifies as a fair use, then it would not be considered an illegal infringement.

The clip was a part of a longer video (about 71 minutes long) was first reported on in June 2015 by Michelle Celarier at the NY Post. The video clip posted last week was about a minute and a half long, and it was posted in order for people to comment upon it. No one was trying to steal some copyrighted materials from Herbalife and infringe on that copyright. Instead, the whole point was to expose what Michael Johnson said about Herbalife’s recruiting.

So why would Herbalife want to make a bogus copyright claim? Because the clip of CEO Michael Johnson put the company in a really bad light. And we can’t have that! Continue reading

The Price of Free Speech is $200,000

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medifast-lawsuit-check-to-tracy-coenenFree speech is a privilege we enjoy in the United States. But it is anything but free. My personal price for the right to express my opinion about Medifast, Inc. was 5 years of my life and nearly $200,000. (Of course, that doesn’t include the emotional toll that the case took, as Medifast’s malicious pursuit of its meritless case against me was clearly designed to ruin me professionally.)

Case Summary

To summarize Medifast’s bogus case against  the defendants:

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