Overstock’s real estate and naked short risks…
In a little less than two weeks, footnoted will celebrate its fifth anniversary and in all of that time writing about odd disclosures at all sorts of companies, I’ve managed to avoid writing about Overstock (OSTK). It was definitely a conscious decision, mostly because so many other people were beating the drum, including my friend Herb Greenberg, who’s now gone into the research business, leaving a gaping void, especially when it comes to Overstock. (The backstory is here for those unfamiliar with the details).
But the 10Q that Overstock filed on Monday was simply too interesting to ignore. That’s because the filing had lots of new warnings about the real estate business that it introduced back in May. In addition to regular listings, the site tries to bring some order to the chaos involved in searching for distressed properties and foreclosures, though my own quick experimentation with the site didn’t bring in nearly as many properties as I was able to find on Countrywide’s REO site, which only lists foreclosures for one institution. That could be because at least based on disclosures in the Q, people have to advertise to appear on the site and it’s unclear why banks that already have their own systems in place would sign up.
Indeed, the risk factors involved in the real estate business are fairly extensive, according to the Q, where they’re buried at the very end of the filing:
The law regarding the potential liability of an online listing service for real estate sales is not clear. The platform of the listing service will be accessible to those subscribers who will have the ability to feature their real estate for sale and will supply the text descriptions of the real estate, including the general condition of the real estate and other important information. We will have no ability beforehand to know if the information sellers provide is correct.
There was one other interesting new tidbit in the filing about naked short selling, which we last footnoted here:
Additionally, Dr. Patrick Byrne and the company have fostered and supported a national debate concerning illegal trading practices called “naked short selling” and have advocated regulatory changes and enforcement action designed to end these practices. The profile of the company and Dr. Byrne, and their positions on issues associated with the debate, may make the company and Dr. Byrne the target of criticism and derision in the financial markets and associated media, and this may prove to have an adverse effect on the company’s stock price.
Just don’t say you weren’t warned. It’s right there in the filing.
Photo credit: (AP Photo/Douglas C. Pizac)
RSS
August 6th, 2008 at 11:37 am
Michelle:
Overstock.com has continually violated SEC Regulation G governing non-GAAP financial disclosures.
The company has materially overstated EBITDA in financial reports filed with the SEC starting from Q2 2007 to the present by improperly reconciling EBITDA to operating income rather than net income and improperly removing the effects of share-based compensation costs from its reported EBITDA.
The SEC Division of Corporation Finance has taken action against other companies with similar violations. However, despite the SEC being notified about Overstock.com’s Regulation G violations by me, they have taken no action to date.
Overstock.com’s SEC Regulation G violations are detailed here:
http://whitecollarfraud.blogspot.com/2008/07/sec-stands-by-while-overstockcom.html
August 6th, 2008 at 1:35 pm
How is it unclear why a bank would want to advertise on external websites? How is it unclear why a bank would want more exposure than their other website?
How many people know to go to a specific bank’s website to check out REO?
Why would it be more convenient for one to go to each and every bank’s REO website?
August 6th, 2008 at 1:36 pm
How is OSTK the best news you could come up with right now? All other companies are doing fine, I remember now.
August 6th, 2008 at 1:37 pm
Michelle,
I want to make sure that convicted felon Sam Antar’s words are put into proper context.
Convicted felon Sam Antar, friend to Herb Greenberg as well, and fellow Overstock.com basher claims quite routinely that Overstock.com is in violation of Securities laws. What Sam continues to fail to disclose is that he did meet with the SEC, he did present his evidence and opinions to them, and the SEC disagreed with Sam’s assessments. They closed down their investigation. That makes such claims of “taken no action to date” very misleading. They do not intend to take action at all.
I can only wonder what financial incentive convicted felon Sam Antar has in continuing to make these misleading and potentially manipulative claims knowing full well they are inaccurate.
August 6th, 2008 at 2:08 pm
First, there’s no reason to get nasty. That’s one of the main reasons I’ve avoided writing about Overstock in nearly 5 years of blogging. Clearly, there’s a lot of very deep personal feelings about this stock. As to John’s point about why I chose to write about it, it’s pretty simple: I found the new disclosures interesting and it’s my site so I wrote about them. Not much intrigue there.
As for John’s other comment about why it would be more convenient to go to each bank’s REO site, it’s not. So if there was a site that was able to bring all of that information together in one place — and was ad supported, instead of subscription-based, it would be great. Overstock Real Estate isn’t there yet, based on the short testing I did. Maybe it will be one day.
August 6th, 2008 at 4:50 pm
Unfortunately Michelle, you chose to put up a post by Convicted Felon Sam Antar that continues to make blatant false and misleading accusations. In doing so you would expect a sharp response. People found out about this blog because Sam was posting it and his response on other message boards to get his message out there.
I applaud you for identifying your close relationship to Herb although, as you would expect, that creates it’s own cloud over your motives.
Can I ask, why did you not recognize in your discussions about Byrne and Naked shorting that Paulson has recognized the practice as detrimental to the market, The commission has recognized it as such, and the market participants are now coming out and boldly discussing this issue. Clearly the issue exists, the regulators are concerned about it, the FTD data illustrates teh significant rise un unsettled trades, and all anybody wants to do is blame byrne for not having a profitable company. How A has anything to do with B is beyond me.
August 6th, 2008 at 4:50 pm
Overstock.com’s No. 1 Risk Factor: Patrick Byrne…
Overstock has made it official: it’s No. 1 risk factor is its dipsy doodle CEO….
August 6th, 2008 at 6:51 pm
Michelle, you will most likely regret writing about Overstock as you’ll get one too many penny stock scam bagholder over here ranting and raving non stop.
Why not write about a profitable firm who taught short sellers a lesson they’ll never forget:
Cal-Maine which trades as CALM on the NasDaq. Feel free to ask Herb Greenberg about how honest its CEO, Fred Adams Jr., is. Fred explained the egg supply/demand cycle to Herb as well as the cycle nature of the revenue/earnings stream and factors which positively or negatively affect it like grain prices.
Excellent blog, Michelle.
August 7th, 2008 at 12:54 am
Michelle , Sam is a degenerate , liar, crook he works for the naked shorters .
August 7th, 2008 at 5:48 am
*** Off Topic ***
Michelle,
I don’t know if you read the daily Dilbert strips. If that’s not the case, have a look today, there’s a hysterical quote that made me think of you:
“Sometimes the footnotes smell like actual feet”
Keep up the good work!
Warm regards,
Marc
August 7th, 2008 at 8:56 am
Thanks, Marc. Just checked out the strip and it is very funny. Dilbert’s dipped into the footnotes a few times before. Here’s a link to the latest one.
August 9th, 2008 at 4:16 pm
You only have to have Whacky Patty or one of his henchmen lie about you once to realize that he blows a lot of smoke.
He is sort of the Pied Piper of the Perpetual Stock Market Misfits (aka penny stock losers).
But despite that I love him dearly as he is the naked short’s best friend.
August 9th, 2008 at 11:00 pm
Dave posting here is actually Dave Patch who claims to be a market reformer.
However, Dave Patch hides the fact here that Overstock.com CEO Patrick Byrne helped him get an attorney for a certain legal matter and that Patch did not have to pay the bill.
If Dave Patch claims to be a market reformer, why does he accept gratuities from Overstock.com CEO Patrick Byrne who has a long documented history of being a habitual liar?
Apparently, Dave Patch is a compensated shill for Patrick Byrne.