14 Nov

Why Roddy Boyd’s Ethics Failure Matters

The long-running Overstock.com fraud story probably isn’t of interest to most of my readers. But when you’ve got a company that manipulates its financials to turn losses into profits and the executives profit handsomely from manipulating the stock and the company’s lunatic CEO harasses and stalks critics, you can see why a fraud investigator might want to tune in.

The Cohodes/Overstock Donation Debacle

Earlier this week I wrote about Roddy Boyd and his Southern Investigative Reporting Foundation (SIRF), and the shenanigans surrounding his receipt of $329k of Overstock.com stock from Marc Cohodes. Marc is a short seller who lost a lawsuit brought by Overstock against his company Rocker Partners for its very public criticism of the company and its CEO, Patrick Byrne.

In 2017, Marc mysteriously made up with Byrne and became a very vocal pumper of Overstock’s stock after taking a substantial long position.

In December 2017, Cohodes offered Roddy 5,000 shares of Overstock.com stock, and Roddy took it and sold it for $329,000.  Marc was buying Roddy’s silence on Overstock, and both of them knew it, whether or not it was explicitly stated between them.

Roddy confirmed that in June 2018: Read More

12 Nov

How NOT to Do Investigative Journalism

A decade ago, I was really into blogging about companies that were perpetrating frauds on consumers and investors. Nobody paid much attention to me, but I enjoyed digging into company financials and exposing the actions of dishonest executives. It fit nicely with my fraud investigation work.

One of the companies that interested me was Overstock.com. The company was prone to cooking the books, and they were headed up by an unbalanced CEO named Patrick Byrne who was fond of conspiracy theories.

There’s only so much you can write about a company repeatedly manipulating its financials and the SEC inquiries that follow. I stopped writing about them in early 2010, until things got interesting again in 2017.

Marc Cohodes, a fairly well-known short seller who had criticized the company massively (and ended up on the losing end of a big lawsuit by Byrne), suddenly switched sides.  Cohodes went long Overstock on May 2017, hyped the company at a Grant’s Interest Rate Observer conference in October 2017, said Byrne was now his friend, and had all the negative information about him wiped from Byrne’s Deep Capture website. Sam Antar did an excellent write-up about how Byrne and Cohodes got so chummy. In fact, they were so chummy that Cohodes was trying to get others (such as Antar) to stop writing negative things about Overstock and Byrne. Read More

16 Aug

Fraud at GE Alleged by Harry Markopolos

Harry Markopolos, the whistleblower in the Madoff case (who was telling people for NINE years that a fraud was in progress), just released a report on General Electric (GE) saying that it is a bigger fraud than Enron.

It’s a massive (175 page) report that highlights problems with:

  • hiding $400 billion of losses in the insurance business
  • accounting in the oil and gas unit
  • liquidity

A web page set up to feature the GE report highlights the work and the findings:

  • The investigation of the financial statements and the accounting practices of General Electric has been in process for more than a year
  • 17 years of 10-Ks (2002 to 2018) were analyzed cover-to-cover
  • GE’s approach to business is called “Enronesque”
  • The accounting fraud has been going on for decades, with the company providing only top line revenue and bottom line profits for its business units (not reporting all sorts of expense line items)
  • GE changes financial statement formats every few years so people can’t compare numbers across multiple years

Read More

27 Mar

Digging into the Background of Company Owners and Executives

Have you ever wanted or needed to do a background check on an owner or executive of a company? If you’re considering investing in a public or private company, you may want to find out information on the people who started the company, those who currently own it, and those who currently run it. Tracy talks about the types of information you may be able to find.

Personal information you may want to review:

  • Personal history, such as family members, marital status, etc.
  • Professional history
  • Ownership and affiliation with other companies (both past and present)
  • Compensation agreements

Other interesting things that can tell you something about the people you’re looking into: Read More

30 Nov

Short Seller Marc Cohodes About Face on Overstock

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. Read More

06 Nov

Overstock.com Report on TheStreetSweeper

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.

Read More

16 Feb

Changes to Sarbanes Oxley?

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. Read More

16 Aug

Executive Prison Sentences and Fraud Deterrence

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. Read More

01 Mar

When Upper-Level Executives Go Bad

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. Read More

08 Dec

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

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. Read More