Sam Antar on Green Mountain: Inventory Changes Signal Trouble

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Sam Antar Crazy Eddie CFOSam Antar, former CFO of Crazy Eddie, a massive fraud in the 1980s, has been following Green Mountain Coffee Roasters (GMCR) for a long time. He has pointed out red flags of fraud over and over, and the current problem is with the level of inventory. Sam has noted that the inventory of Green Mountain has grown to “toxic levels,” even when the company was beating revenue and earnings targets.

Here’s a recent interview in which Sam details the inventory issue at Green Mountain, along with a few other criticisms of management. Continue reading

A New Look at Herbalife

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Yesterday the stock of Herbalife (NYSE:HLF) dropped 20 percent when David Einhorn of Greenlight Capital began asking questions during the company’s earnings call. Herbalife is a multi-level marketing company which sells vitamins. The company describes itself:

We pursue our mission of “changing people’s lives” by providing a financially rewarding business opportunity to distributors and quality products to distributors and customers who seek a healthy lifestyle. We are one of the largest network marketing companies in the world with net sales of approximately $3.5 billion for the fiscal year ended December 31, 2011. As of December 31, 2011, we sold our products in 79 countries through a network of approximately 2.7 million independent distributors. Continue reading

Groupon’s Latest Accounting Problem

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On Friday, the market eagerly awaited the release of Groupon’s (GRPN)10-K, detailing results for the year ended December 31, 2011. Shares were up 3.84% during regular trading hours, but dropped as much as 8% (eventually settling at -5.93%) in after hours trading when the company announced its figures were not as good as reported in February.

Revised Numbers

Some news sites are billing this as a restatement, although it would appear to be more of a revision to the numbers, as the original numbers were simply cited in an earnings release and the financial statements weren’t actually issued until Friday. Continue reading

Auditor Rotation Won’t Make Audits Better

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Last week, CFO Magazine published an article online about CFOs opposing the potential proposal by the  Public Company Accounting Oversight Board (PCAOB) requiring companies to switch auditors every 5 to 10 years.  More than 625 comment letters, many from CFOs, controllers, chief accounting officers, and audit committee chairs,  have been submitted to PCAOB since the organization raised the issue of mandatory auditor rotation in August.

The PCAOB is suggesting that forcing companies to change auditors every few years will make the audits better. They say that a new accounting firm would equal a fresh set of eyes, and therefore a more skeptical audit. Continue reading

MATC Fraud Went Undetected Until First Audit in a Decade

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Karen Herzog, Milwaukee Journal Sentinel

When a former Milwaukee Area Technical College employee used her MATC credit card to pay for a car, a wedding trip, computers, home furnishings and other personal items totaling $259,000, the purchases went undetected until the college’s first internal audit in a decade.

The audit was requested by James Williams, vice president of finance, who was surprised when he arrived at MATC in July 2010 to find the college had not had an internal audit since 2001. He quickly sought a routine audit because a college with a $260 million budget should have one, Williams told the Journal Sentinel on Tuesday. Continue reading

Fraudulent Accounting Practices: Easy to Commit, Hard to Find

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We hear almost daily reports of companies engaging in accounting shenanigans to boost their apparent performance. As of late, companies like Diamond Foods (DMND), Green Mountain Coffee Roasters (GMCR) and Avon Products Inc. (AVP) are grabbing headlines for their alleged bad behavior.

Avon has been under the shadow of bribery allegations, in violation of the Foreign Corrupt Practices Act (FCPA), since at least 2008. The company has spent hundreds of millions of dollars conducting internal investigations, has lost at least four executives linked to bribery in China, and has been suffering from poor financial performance. And now it appears that Avon may have been aware of bribes being paid as far back as 2005, meaning the company’s problems may soon get even worse. Continue reading

Groupon: Problems With Customer Loyalty and Marketing Costs

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Prior to Groupon’s IPO last year, I wrote a few articles that were critical of the company. In one of my articles, I noted problems with loyalty of customers and merchants:

  • It’s expensive to get new customers. Sure, a large email list is nice. But how much does it cost to get people on it, and more importantly, how much does it cost to get buying customers on it?
  • Only about 21% of subscribers have purchased a Groupon since January of 2009. The company has nearly 143 million subscribers, but less than 30 million of those have actually made a purchase. Worse yet, only 16 million (or 11%) are repeat customers, buying more than one Groupon since January of 2009. Continue reading

When Employees Steal, the SEC May Punish the Company and the CEO

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Guest Post by Keith Paul Bishop

Editor’s Note: This article was originally published on Keith Bishop’s blog, California Corporate & Securities Law on November 23, 2011. It offers us a different view from that of Tracy Coenen regarding the SEC’s action against Michael Koss and Koss Corp. for the embezzlement perpetrated by Sujata Sachdeva.

In this week’s issue of Compliance Week, Tammy Whitehouse writes about the SEC’s recent enforcement action against Koss Corporation and Michael J. Koss, its Chief Executive Officer and former Chief Financial Officer. Continue reading

J2 Global Communications Trying to Hide Accounting Errors

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J2 Global Communications (NasdaqGS: JCOM ), better known as eFax, is under fire. Yesterday, Sam Antar tore into the company for an accounting gimmick that the company (and its auditors) had to know was wrong. The issue involves revenue and deferred revenue.

In the 10-Q for the first quarter of 2011, J2 reported an upgrade to its accounting system. The new system gave J2 the ability to properly calculate unearned revenue from annual contracts with customers: Continue reading

Compliance Week: Koss Embezzlement and Small Company Internal Controls

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Today’s Compliance Week article, “SEC Pursues Small Company Over Lax Internal Controls,” [subscription required] discusses the SEC settlement with Koss Corp over the $34 million embezzlement by former Vice President of Finance Sujata (Sue) Sachdeva.

The article explains the settlement, which is essentially a clawback of some of Michael Koss’s compensation: Continue reading