{"id":2702,"date":"2008-10-26T09:45:21","date_gmt":"2008-10-26T15:45:21","guid":{"rendered":"http:\/\/www.sequence-inc.com\/fraudfiles\/?p=2702"},"modified":"2010-06-12T22:10:41","modified_gmt":"2010-06-13T04:10:41","slug":"overstockcom-executives-subject-to-clawback-provision-in-sarbanes-oxley","status":"publish","type":"post","link":"https:\/\/www.sequenceinc.com\/fraudfiles\/overstockcom-executives-subject-to-clawback-provision-in-sarbanes-oxley\/","title":{"rendered":"Overstock.com executives subject to clawback provision in Sarbanes-Oxley?"},"content":{"rendered":"<p>This past week, our good friends at Overstock.com (NASDAQ:OSTK) &#8211; &#8211; CEO Patrick Byrne, President Johnathan Johnson, and SVP of Finance David Chidester &#8211; &#8211; made an announcement about how <a href=\"http:\/\/www.sequence-inc.com\/fraudfiles\/2008\/10\/24\/overstockcom-whats-10-million-more-in-losses\/\">they have screwed up<\/a> the company&#8217;s financial statements <strong>again<\/strong>.<\/p>\n<p>Overstock has a colorful history of issuing incorrect financial statements, with the following discoveries of their errors (and maybe irregularities):<!--more--><\/p>\n<ul>\n<li><a href=\"http:\/\/biz.yahoo.com\/prnews\/081024\/laf028.html?.v=101\">October 2008 restatement<\/a> due to improper implementation of accounting system &#8211; Result: $10 million more in losses &#8211; Restating 2003 through 2007 financials<\/li>\n<li><a href=\"http:\/\/sec.gov\/Archives\/edgar\/data\/1130713\/000110465908005596\/a08-4058_1ex99d1.htm\">January 2008 recorded cumulative effect<\/a> as of December 2007 due to improper recording of revenue &#8211; Result: $8.7 million reduction in revenue &#8211; No restatement, but all financials since the start of the company would have been impacted<\/li>\n<li><a href=\"http:\/\/sec.gov\/Archives\/edgar\/data\/1130713\/000110465906012340\/a06-4848_28k.htm\">February 2006 restatement<\/a> due to failure to properly record freight costs &#8211; Result: $3.5 million in gains &#8211; Restating 2002 through 2005<\/li>\n<\/ul>\n<p>Consider the years 2003, 2004 and 2005: They will have been restated twice with an additional problem that the company chose not to do a restatement for. That means the financial statements for each of those years has been <strong>issued three times<\/strong> and could have a fourth set issued if Overstock.com hadn&#8217;t elect to not do that restatement.<\/p>\n<p><strong>Why would any user of the company&#8217;s financial statements have any reason to believe any of the numbers Overstock now releases?<\/strong><\/p>\n<p>And the restatements raise an interesting issue&#8230; Section 304 of the Sarbanes-Oxley act of 2002 has a <a href=\"http:\/\/www.law.com\/jsp\/ihc\/PubArticleIHC.jsp?id=1202421589570\">clawback provision which reads<\/a>:<\/p>\n<blockquote><p>Sec. 304. Forfeiture of Certain Bonuses and Profits<\/p>\n<p>(a) Additional Compensation Prior to Noncompliance With Commission Financial Reporting Requirements. If an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the issuer shall reimburse the issuer for &#8212;<\/p>\n<p>(1) any bonus or other incentive-based or equity-based compensation received by that person from the issuer during the 12-month period following the first public issuance or filing with the Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and<\/p>\n<p>(2) any profits realized from the sale of securities of the issuer during that 12-month period.<\/p>\n<p>(b) Commission Exemption Authority. The Commission may exempt any person from the application of subsection (a), as it deems necessary and appropriate.<\/p><\/blockquote>\n<p>It would be left to the SEC to determine if there was material non-compliance and misconduct. Of course, the Overstock.com supporters would say there is neither, but I&#8217;m not so sure it&#8217;s as black and white as that.<\/p>\n<p>The SEC hasn&#8217;t used the clawback provision much. A December 2007 settlement with a UnitedHealth was reportedly <a href=\"http:\/\/www.sec.gov\/news\/press\/2007\/2007-255.htm\">the first time<\/a> the SEC had entered into a settlement with an individual relating to the clawback provision.<\/p>\n<p>If the provision has been used once in a five-year-period, that doesn&#8217;t give me much confidence that the SEC is goign to aggressively pursue such an issue, but I raise the issue because it is, indeed, an issue. Over the last year, the following executives had have stock sales totaling:<\/p>\n<blockquote><p>David Chidester &#8211; $77,324<br \/>\nJohnathan Johnson &#8211; $957,962<\/p><\/blockquote>\n<p>Lucky for Johnson, he doesn&#8217;t seem to fall under this rule, but Chidester does. I don&#8217;t know to what level the actions of executives have to rise before the SEC gets serious about them, although I do know that the SEC is seriously <a href=\"http:\/\/garyweiss.blogspot.com\/2007\/08\/sad-tale-of-captured-agency.html\">understaffed and unmotivated<\/a>. They can&#8217;t possibly investigate all the legitimate allegations against companies, even if they wanted to.<\/p>\n<p>The bottom line regardless of enforcement actions? Overstock.com&#8217;s financial statements <a href=\"http:\/\/whitecollarfraud.blogspot.com\/2008\/10\/new-accounting-errors-make.html\">have never complied with GAAP<\/a>. Fair warning for anyone stupid enough to invest in this company.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This past week, our good friends at Overstock.com (NASDAQ:OSTK) &#8211; &#8211; CEO Patrick Byrne, President Johnathan Johnson, and SVP of Finance David Chidester &#8211; &#8211; made an announcement about how they have screwed up the company&#8217;s financial statements again. Overstock [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[16],"tags":[],"class_list":["post-2702","post","type-post","status-publish","format-standard","hentry","category-auditing-regulations"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p6Z0e-HA","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/2702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/comments?post=2702"}],"version-history":[{"count":0,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/posts\/2702\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/media?parent=2702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/categories?post=2702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sequenceinc.com\/fraudfiles\/wp-json\/wp\/v2\/tags?post=2702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}