Media – 2009

Favorite Media Interviews and Mentions

November 2009: Newsweek 20/10 – Bernie Madoff’s Giant Ponzi Scheme, By Sam Antar

Madoff was a serial economic predator for 20 years and the only reason he stopped was because he got caught. He didn’t get caught because of the SEC and the auditors. It was our imploding financial system. More than three quarters of these kinds of schemes are found out not during the execution but during the implosion. The SEC has less than one 10th of the power as the NYPD and they have to police the capital markets. That’s why we’re going to continue having these crimes over and over again. We had skimmed money for about 15 years before we went public at Crazy Eddie. After we went public, we just put back some of our skimmed money as sales. Just like the SEC with Madoff, our auditors never really followed the money. Our auditors trusted but didn’t really verify, when they should have not trusted and only verified.

October 9, 2009: – Financial fraud 101 — Accounting for criminals, By Kevin Voigt

So Antar would pair “cute hot female” employees with male auditors as part of his distraction strategy. “In effect, I was a fraudster, matchmaker and pimp,” said Antar, who avoided jail time by working with the U.S. government, and now advises government agencies and businesses on avoiding accounting fraud.

October 4, 2009: Crain’s New York Business – Crazy Like a Fox, By Aaron Elstein – (Download)

Sam E. Antar knows a thing or three about fraud. He was chief financial officer at Crazy Eddie, the infamous appliance retailer with “insaaaaane” prices that skimmed profits, evaded taxes, laundered cash and fudged inventories for a Madoff-esque 15 years before collapsing in 1987.

Mr. Antar pleaded guilty to conspiracy and obstruction of justice charges, but avoided jail by turning against the relatives who ran the business with him. He was the government’s star witness at a 1993 trial. His cousin, Chief Executive Eddie Antar, ultimately went to prison for about seven years.

Now Sam Antar, 52, is using the expertise he gained as a criminal to uncover accounting problems at other companies. Exhibit A for him these days is Inc.,an online retailer with a recent history of accounting issues.


Despite his felonious past, Sam Antar has earned credibility with law enforcement officials. He’s spent much of the past decade talking to the FBI, the Justice Department, the IRS, accounting students and business groups, explaining how Crazy Eddie fooled auditors for so long.The former CPA says he feels bad about what he did and wants to help overmatched investigators as they try to root out savvy fraudsters.

“He knows accounting backwards and forwards,” says Richard Simpson, an SEC attorney who helped lead the government’s probe into Crazy Eddie.

October 2, 2009: – Redemption and the white collar criminal, By Kevin Voigt

Another convicted white-collar felon, Sam Antar, is more circumspect on the subject of redemption. Although he now lectures government organizations and businesses about white-collar crime, he stops short of saying he’s “reformed.”

“If I tell you I’m not a criminal any more, should you really believe me?” said Antar, who cooked the books in a multi-million securities fraud in the 1980s. “White-collar criminals wrap themselves around a wall of false integrity.”

As more white-collar criminals get collared, questions surrounding rehabilitation will likely grow, too.

October 2, 2009: – Suicide, lies, and videotape: The real “Informant!”, By Kevin Voigt

And as Whitacre showed, whistle blowers often don’t have noble motives. “The movie should be taken very, very seriously,” said Sam Antar, a CPA who turned government witness against his employer in the 1980’s.

“In white-collar cases, the governments have to rely on informants … in effect, relying on unsavory characters to make their case,” said Antar, who now advises government agencies on white-collar crime.

“What happened in ‘The Informant,’ is he had an agenda to become head honcho of the company,” Antar said. “The mistake the FBI agents made in the movie is they fell in love with their witness. It turned out there was a dark side they didn’t know about.”

September 23, 2009: Jewish Week – Still Searching For Repentance, By Adam Dickter

When Sam Antar recites the viduy list of sins in the Yom Kippur liturgy Monday, it will be a like a checklist of his past.

He has stolen. He has cheated. He has betrayed. He has caused others to sin.

And by his own admission, he loved every minute of it.

“I enjoyed committing my crimes, and I did it for fun and profit,” says the former chief financial officer of the Crazy Eddie electronics chain, who helped bilk customers, investors and the government out of hundreds of millions of dollars.

August 26, 2009: Jewish Daily Forward – ‘Crazy’ Eddie’s Cousin, a Former Fraudster, Speaks Out on Syrian ‘Subculture of Crime’, By Rebecca Dube

Sam E. Antar wants you to know up front: He’s no hero.

The former chief financial officer of Crazy Eddie Inc. whose testimony helped convict his cousin, Eddie Antar, in 1993 takes an almost gleeful tone when confessing his sins. He lied. He committed fraud. He skimmed money. He misled investigators. And when he came clean, providing the information and testimony that helped topple the fraudulent Crazy Eddie empire, he did so only to save himself from prison.

“I committed my crimes, and I did it for fun and profit,” Antar, 52, said in a recent interview with the Forward at a diner in midtown Manhattan. “And if I stopped committing my crimes, it was only because I got caught. So I’m not going to pretend to you to be some kind of born-again moral person.”

Still, as a reformed criminal — he teaches seminars to the IRS, the Justice Department and other organizations on how to combat white-collar crime — as well as a lifelong member of Brooklyn’s Syrian Jewish community, Antar offers a unique perspective on the current scandal involving allegations of money laundering by three prominent Syrian rabbis, part of an FBI investigation that led to 44 arrests in July. And he’s not shy about sharing his opinions.

August 17, 2009: Atlantic City Press – Crazy Eddie’s cousin stars in Republican hearing on corruption, By Derek Harper

Wiry, animated and admittedly corrupt, Antar got laughs when he took his seat and thanked the five Republican assemblymen on the panel “for inviting the only member of the criminal class.”

When political consultant George Dredden suggested regular polygraph tests for state politicians, Antar supported it, saying they should be used for anti-corruption screenings. He said Crazy Eddie staffers were regularly subject to polygraph exams to ensure they were not revealing their schemes to law enforcement officials.

Antar also advocated paying bounties to whistle-blowers.

But he said the best thing to reduce corruption would be putting a greater emphasis on white-collar crime investigations, coupled with greater available information and increased business disclosure.

With the number of victims, white-collar crime is more socially devastating than almost any other crime, he said.

August 11, 2009: Dow Jones Newswires – DJ in the Money: Critics Claim InterOil Misled Investors, By Michael Rapoport

Antar called InterOil’s statements “a false and misleading disclosure, or an omission of a material fact.”

July 28, 2009: Jewish Week – Syrian Community Moving To Limit Damage After Sting

But last week’s arrests may be the tip of the iceberg, says a former businessman in the community who has been on the wrong side of federal prosecutions.?

“This was one guy who turned in 44 people,” said Sam Antar. “When you have 44 people worried about going to jail, some of them are going to turn in other people. That’s what the government does. It flips witnesses.”?

Antar, who provided evidence against his cousin, Eddie Antar, in the Crazy Eddie investor fraud case of the late 1980s, says the desire to stay out of jail should not be underestimated as a motivating factor. His own testimony as chief financial officer of the electronics chain put Eddie Antar and another cousin in jail and resulted in Sam being fined and sentenced to community service. “There are 300 agents on this case, and they are not going away after the 44 arrests,” says Antar, who now lectures to companies and law enforcement about white-collar crime.

Michael Drewniak, a spokesman for U.S. Attorney Marra, told The Jewish Week in an e-mail: “For those who were charged last week, the next step in the process is to present their cases to the grand jury for potential indictment. … We do not say in advance that we anticipate charging other individuals.”?

While insisting the vast majority of Syrian Jews are law-abiding, Antar said that the community’s tight-knit, insular nature, the amount of interconnected families and the deep level of trust provide a natural framework for keeping secrets.

“You have here an alleged crime that was committed by a group of people who shared several common characteristics,” said Antar. “Religion, race, ethnicity and social background. It’s no different than other organized conspirators, like the mob, the Eastern European gangsters, the South American cartels. When you build bonds between people, their crimes can go undetected for very long periods of time.”

July 24, 2009: New York Times – Brooklyn Blogs Buzzing With Talk About Rabbis, By Paul Vitello

For Sam E. Antar, a Brooklyn-born member of the Sephardic community who went to prison for business fraud and now advises law enforcement agencies and companies on how to detect white-collar crime, the blogger’s question pointed to the essence of organized fraud: the total trust among participants.

“I’m not saying these guys, I’m just saying in general — but in every organized white-collar crime, you have to have a group of people bound by relationships that everybody believes are indestructible,” said Mr. Antar, 62, who was the chief financial officer of the Crazy Eddie discount electronics chain and the cousin of its namesake, Eddie Antar, who was also convicted of fraud.

Being tight-knit — normally considered a plus for any group — “that can work both ways,” he said. Cautioning again that he was speaking hypothetically, he added: “When the F.B.I. gets a good grip on a guy who belongs to a network like that, it’s like, they can pull the string and the whole thing unravels.”

July 22, 2009: Jewish Week – UPDATED: Syrian Jewish Insider: “Not Surprised” by Arrest of Prominent Rabbis in Breaking FBI Investigation

Sam Antar, the former CFO of the Crazy Eddy TV and appliance empire who went to jail in that fraud case, now holds seminars for federal agencies – including the IRS – on the ins and outs of white-collar crime.

Antar told The Jewish Week that “Most people in this community are law-abiding hard-working Americans and the alleged actions of a few people are no reflection on the entire community. But I’m not surprised when I see this kind of thing happen.”

Small, tight-knit communities such as the Syrian Jewish enclave in New Jersey and Brooklyn are are particularly prone to white-collar crime, he said.

“It happens all the time in all kinds of closed, insular communities, and these crimes are the toughest to crack,” he said. “The people are bound not just by economic incentives, but cultural, religious, ethnic and family ties. They tend to be highly coordinated, and they can take years to investigate.”

Antar predicted that when the dust settles “hundreds” of people could be implicated.

April 10, 2009: Baltimore Business Journal – Take it from a real thief: Ask a lot of questions before investing your cash, By Heather Harlan Warnack

Sammy Antar stole the show.

The former chief financial officer of Crazy Eddie Inc., who masterminded a major securities fraud in the 1980s, recently served as a panelist for a financial crimes conference I attended in New York.

“My name is Sammy Antar, and I’m a crook,” he said during an April 1 session at the John Jay College of Criminal Justice.

What an opener. “You can steal more with a smile than you can with a gun,” Antar continued.

He’s right. Just ask Bernie Madoff and Sir Allen Stanford. Not to mention their victims, some of whom are right here in Maryland. So how were these and other “businessmen” allowed to get away with it? To put it simply, they preyed on the public’s trust and lack of understanding.

April 10, 2009: Sacramento Bee – Ponzi schemes flourish with vulnerable victims, underfunded watchdogs, By Andrew McIntosh

With a twisted, toothy sort of grin, he especially likes to greet a room full of perfect strangers with: “Hi, I’m Sam Antar, and I’m a crook.”

Antar wants you to understand how Ponzi operators and fraudsters steal money by taking advantage of “nice people” for years, only to be arrested after their schemes collapse and lives are wrecked.

“Criminals like me consider your humanity a weakness to be exploited in the execution of our crimes,” Antar told participants at a recent conference at the John Jay College of Criminal Justice. “We can steal more money with a smile than we can steal with a gun.”

His unvarnished message is an unnerving but timely one: It seems a new Ponzi scheme is unraveling every day, a Bernie Madoff lurking at every turn.

March 2, 2009: New York Post – IT’S IN-SAANE! ‘VILE’ CRAZY EDDIE RETURNING WITH NEW OWNER, By Rebecca Rosenberg

Bringing Crazy Eddie back is downright loony, says Sam Antar, the nephew of founder Eddie Antar and the CFO who helped cook the books and spent six months in house arrest for it. Eddie skipped to Israel, was extradited and spent 7½ years in prison.

“Imagine starting a new investment firm called Bernie Madoff or a corporation by the name of Enron? It’s nuts,” said Sam Antar.

“The name has a vile, ugly history – because of the crimes we committed. We lost investors millions of dollars.”

February 20, 2009: StockWatch – faces another shoddy accounting challenge, By Lee M. Webb Inc., an online discount retailer headed by naked short selling conspiracist Patrick M. Byrne, is again being challenged about its accounting practices. Once again, the challenger is the former chief financial officer of Crazy Eddie Inc. and convicted fraudster Sam E. Antar.

According to Mr. Antar, violated generally accepted accounting principles (GAAP) in its fourth-quarter reporting, essentially fiddling the books to turn an $800,000 quarterly loss into a $1-million profit. (All amounts are in U.S. dollars.) Mr. Byrne dismisses Mr. Antar’s claim as gibberish.

Some people, perhaps easily persuaded by ad hominem arguments, evidently find it very easy to disregard Mr. Antar’s claims. After all, as Mr. Byrne is quick to point out, Mr. Antar is a former fraudster. In fact, in conference calls and elsewhere, Mr. Byrne often eschews describing Mr. Antar as a “former fraudster” and has repeatedly referred to him as “Sam Antar the Crook.”

Other people, like forensic accountant Tracy Coenen and investigative journalist Gary Weiss, are not so easily swayed. After all, Mr. Antar not only supports his claims with logical arguments, but cites and reproduces the relevant parts of specific financial accounting standards and a U.S. Securities and Exchange Commission (SEC) accounting bulletin. Ms. Coenen and Mr. Weiss, among others, think Mr. Antar is right.

It is perhaps worth mentioning that has arguably had more than its fair share of acknowledged accounting problems since Mr. Byrne took the company public in 2002. In addition to having to make a one-time cumulative adjustment of $13.7-million in 2007 after the SEC discovered revenue recognition errors, has twice restated financial statements, including a restatement of previously restated financials.

Moreover, Mr. Antar’s most recent allegation regarding accounting shenanigans turns on a reported one-time gain of $1.8-million for the fourth quarter of 2008 “relating to payments from partners who were under-billed earlier in the year.” In other words, the reported one-time gain of $1.8-million stems from recently discovered accounting errors.

It is perhaps also worth mentioning that Mr. Antar has been providing commentary and detailed analyses of’s financial reporting and other disclosures for more than two years on his “White Collar Fraud” website. Among other things, since at least November of 2007, Mr. Antar repeatedly challenged about its reported earnings before interest, taxes, depreciation and amortization (EBITDA), claiming that the company was violating SEC Regulation G governing non-GAAP financial measures.

Mr. Byrne and other officials repeatedly dismissed Mr. Antar’s claims, insisting as recently as Oct. 24 of last year that the company was properly calculating, reconciling and reporting EBITDA. It turned out, however, that Mr. Antar was right, as at least tacitly acknowledged when it quietly substituted and properly reconciled “Adjusted EBITDA” for its previously non-compliant EBITDA disclosures in three amended financial reports filed on Nov. 10, 2008.

Before turning to a brief review of the EBITDA flap and an examination of the more recent dispute over the proper treatment of’s reported one-time gain of $1.8-million in the fourth quarter, Stockwatch will provide an introduction to the main protagonists: Mr. Byrne, dubbed “Wacky Patty” by his detractors; and Mr. Antar, called “Antar the Crook” by some, thanks in part to the efforts of Mr. Byrne and his supporters.

Wacky Patty

Mr. Byrne’s unflattering moniker arguably has less to do with his role as chief executive officer of, which has never had a profitable year on the way to ringing up an accumulated deficit of approximately $265-million, than his role as a self-proclaimed crusader against naked short selling. At times, however, any lines between those roles have blurred to such an extent that Mr. Byrne may have the unique distinction among chief executive officers of being identified as a risk to the company he founded and leads.

In SEC filings, discloses that the positions of the company and Mr. Byrne on issues associated with “a national debate concerning illegal trading practices called ‘naked short selling'” may make them “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.”

In support of his crusade, and perhaps to mitigate the risk to, Mr. Byrne founded an outfit called Deep Capture “to bypass the ‘captured’ institutions mediating our nation’s discourse.” The specific focus of Deep Capture, where the busy Mr. Byrne holds himself out as a reporter, appears to be advancing naked short selling conspiracy theories, though it is put differently on its website.

“Deep Capture is a work of investigative journalism examining the growing threat to our financial system posed by illegal naked short selling, stock manipulation, and the destruction of public companies,” the Deep Capture website proclaims.

The sanctioned story of Deep Capture is served up on the website in a 69-page “article” written by a former Columbia Journalism Review editor, Mark Mitchell, who is now a Deep Capture reporter. The incredible 40,000-word screed has been described as Joycean, though some readers have found the style less stream-of-consciousness than manifestation-of-apophenia, making spurious connections among unrelated matters and then drawing or inviting specious conclusions.

Mr. Byrne, the central figure in the tangled tale, thinks that it is a fine piece of work.

“It makes Grisham read like a book of bedtime stories, and exposes a scandal that may make Enron look like an afternoon tea,” Mr. Byrne writes, touting the piece as an expose that “reveals a circle of corruption enclosing venerable Wall Street banks, shady offshore financiers, and suspiciously compliant reporters at The Wall Street Journal, Fortune, CNBC, and The New York Times.”

In his Deep Capture story and other articles, Mr. Mitchell properly identifies Aug. 12, 2005, as the date of a seminal event in Mr. Byrne’s crusade. That was the day that Mr. Byrne hosted a conference call to ostensibly discuss a lawsuit that had filed against a research firm, Gradient Analytics Inc., a hedge fund, Rocker Partners LP, and associated entities and individuals for allegedly conspiring “to denigrate’s business for personal profit.”

Mr. Byrne did talk about the lawsuit, but much of the bizarre conference call was given over to a muddled rant about naked short selling, hedge funds, reporters, the SEC, private investigators and other matters bundled up as presentation called “The Miscreants Ball.”

Mr. Mitchell offers one of his glosses on the peculiar conference call performance in a Jan. 27 Deep Capture piece.

“The story, like so many others, begins on August 12, 2005 — the day that Patrick Byrne, the CEO of and future reporter for Deep Capture (a leading investigative news outfit), delivered a famous conference call presentation entitled, ‘The Miscreants Ball,'” Mr. Mitchell writes.

“To the 500 Wall Street honchos who listened in to this conference call, Patrick said that a network of miscreants was using a variety of tactics — including naked short selling (phantom stock) — to destroy public companies for profit,” the Deep Capture reporter continues. “He said this scheme had the potential to crash the financial markets, but that the SEC did nothing because the SEC had been compromised — or ‘captured’ — by unsavory operators on Wall Street.

“Patrick added that he believed the scheme’s mastermind – ‘just call him the Sith Lord’ — was a ‘famous criminal from the 1980s.'”

According to Mr. Mitchell, the Mafia eventually found its way into the story, along with “diabolical billionaires, phantom stock, dishonest journalists, crooked lawyers, black box organizations on Wall Street, and a crime that could very well cause a meltdown of our financial system.”

In any event, the Aug. 12, 2005, conference call resulted in more than a few raised eyebrows among financial journalists and others who listened to the call or subsequently read the transcript. That conference call, among other things, undoubtedly factored into Mr. Byrne being dubbed “Wacky Patty.”

Antar the Crook

As noted at the outset, Mr. Antar formerly served as chief financial officer of Crazy Eddie, a New York-based chain of consumer electronics stores headed by his cousin Eddie Antar that went public in 1984 and imploded three years later. Put bluntly, Crazy Eddie was a complex securities fraud that involved money laundering, skimming, bogus rebates, false inventories and other accounting dodges.

By his own account, Mr. Antar was one of the principal architects of the fraudulent operation that “cost investors hundreds of millions of dollars, cost many people their life savings, cost many people their jobs and careers, cost creditors hundreds of millions of dollars, and many people’s suffering that cannot be measured.”

As the scheme unravelled, Mr. Antar spent a couple of years destroying documents and lying to SEC and U.S. Department of Justice investigators. When his cousin Eddie Antar skedaddled off to Israel, however, Mr. Antar suspected that he would be left holding the bag. Fearing a long prison sentence, Mr. Antar began co-operating with regulators and prosecutors. He later copped a plea and ended up testifying against Eddie Antar and other family members involved in the scheme in both civil and criminal trials.

For his part in the Crazy Eddie fraud, Mr. Antar drew a light sentence of six months of house arrest, 1,200 hours of community service and three years of probation. His cousin Eddie Antar did not fare so well. After a conviction that was overturned on appeal, Eddie Antar pled guilty rather than face another trial and was sentenced to 82 months in prison.

“My fear of serving a long prison term was my primary motivation and no sense of morality was involved in my decision to co-operate with the government and civil litigants,” Mr. Antar candidly acknowledges. “Any sense of morality that followed later resulted initially from the rude awakening caused by the fear of a very long prison term.

“Had I never gotten caught, I would not have co-operated with the government and civil litigants and I would probably still be a criminal today.”

For the past several years, Mr. Antar has travelled throughout the U.S. delivering “fraud lectures” to university students, professional organizations, regulators, law enforcement agencies and various other groups. Last year alone, he had approximately 30 engagements spread across more than a dozen states. According to his website, Mr. Antar does not accept compensation for his appearances and he pays for his own travel and accommodation.

Dating back to July of 2006, Mr. Antar has written and posted more than 150 articles on his White Collar Fraud blog. Since January of 2007, the majority of those blog entries have been about

Mr. Antar says that he became interested in when he noticed how critics of the company were viciously attacked on Internet chat sites and blogs. Deep Capture reporter Mr. Mitchell suggests that there is something else behind Mr. Antar’s interest in the company.

“Sam Antar is a convicted felon, but he never went to prison because he testified against his cousin, Eddie Antar, in return for house arrest,” Mr. Mitchell writes in a rambling Feb. 3 Deep Capture article. “Now he is paid by short sellers with ties to David Rocker and associates of Michael Milken. The assignment to which he devotes the majority of his time is to use the Internet to harass and smear the reputations of Deep Capture founder Patrick Byrne and his colleagues.”

Mr. Antar, who closes out many of his e-mail messages and Internet posts with the parenthetical notation “(former Crazy Eddie CFO and a convicted felon),” sometimes adding that his mug shot is on file with the FBI, denies that anyone is paying him to write about Mr. Byrne or his Deep Capture colleagues or, for that matter,

Mr. Antar says that he just laughs at the attempts by Mr. Byrne and his supporters to disparage him by referring to him as “Sam Antar the Crook,” which is what happened when he took to task over its non-compliant EDITDA disclosures.

EBITDA brouhaha

It appears that Mr. Byrne is a relatively recent convert to using EBITDA, a non-GAAP financial measure that he held in disdain just a few years ago.

“I don’t believe in EBITDA,” Mr. Byrne proclaimed in a CNBC interview in April of 2004. “If somebody talks about EBITDA, put your hand on your wallet; they’re a crook.”

Evidently Mr. Byrne subsequently had a change of heart. Beginning with its quarterly report for the second quarter of 2007, began incorporating EBITDA into its financial reports. At least it began incorporating what it attempted to pass off as EBITDA into its reporting.

Mr. Antar, a former certified public accountant, was quick to challenge’s purported EBITDA, claiming that it violated the SEC’s Regulation G governing non-GAAP financial measures. As continued to use the non-compliant EBITDA measure in subsequent financial reports, Mr. Antar kept hammering away, supporting his arguments with documentation.

Put simply, two issues lay at the heart of Mr. Antar’s sharp criticism of’s EBITDA: first, the company adjusted for stock-based compensation; and second, it reconciled its so-called EBITDA to operating loss rather than its net loss.

As Mr. Antar pointed out with supporting SEC documentation, the U.S. regulator is quite clear that EBITDA cannot include an adjustment for stock-based compensation. The SEC is also quite clear that EBITDA must be reconciled to net income or, as in the case of, net loss.

The EBITDA dispute got something of an airing on Oct. 24, 2008, when held a conference call to discuss the financial results for the third quarter ended Sept. 30, 2008. In addition to posting another quarterly loss, the company disclosed that it had discovered accounting errors totalling $12.9-million that rendered financial reports dating back to 2003 unreliable.

In a news release issued just ahead of the conference call, Mr. Byrne began his message to shareholders with a rather cavalier comment.

“Other than that, Mrs. Lincoln, how did you like the play?” Mr. Byrne wrote before going on to offer his spin on the latest accounting errors and the company’s third-quarter results.

During the conference call, Mr. Byrne ran through the numbers in more detail, coming eventually to EBITDA, which he claimed was positive for the third quarter. At that point, he turned to a discussion of Mr. Antar.

Mr. Byrne’s remarks, at times disjointed, may be of interest as much for his treatment of Mr. Antar, the critic, as for his peculiar take on EBITDA.

“I’ll answer — at this point I know those who follow this story know that there’s a certain Sam Antar the Crook, as I like to call him and he likes to identify himself, I think he has to as a fellow,” said Mr. Byrne. “Sam Antar the Crook has sent us pages and pages of public questions.

“I’m going to boil it down to he says that in the past I’ve said that EBITDA is garbage and anyone who uses it is crooks and now we use EBITDA.

“Well, that’s true. In the past I’ve also said that it’s — the reason I don’t like EBITDA as a measure is, A, intellectually because you don’t end up counting the spend that you spend on capital equipment as either when you spend it or when you depreciate it. Well that’s not right.

“And secondly, what I really object to is valuing businesses off EBITDA, that’s what Wall Street does and I just object to that because eventually you’ve got to think of the expense of that item either as you spend it or as you depreciate it.

“There are two times, as I’ve said a dozen times I’m sure or more, that EBITDA is interesting. One is when you’re in a low cash situation, it gets very interesting. Also just when you’re in a situation of not having to do much CapEx and our CapEx dropped significantly below our actual GAAP depreciation.

“We are like the proverbial boa constrictor digesting a baby hippo and we ate the baby hippo about three year goes ago actually right now and it’s moved its way through the boa constrictor.

“What were the other ones?

“Just the claim that EBITDA is not compliant with SEC definition, nonsense. Our EBITDA reconciles to GAAP, the SEC says you have to reconcile EBITDA to GAAP.

“We follow, I believe, the general industry practice and — the A in EBITDA, amortization of stock-based compensation, our EBITDA excludes it. Moreover we reconcile everything to GAAP.

“Antar the Crook has pointed out as a couple of people have received comment letters they were people who had not reconciled to GAAP.

“In any case — we’ve gone through this over and over with our lawyers. They’re saying you’re doing this right. Jonathan, do you want to add anything?”

Jonathan Johnson,’s president, had little to say.

“No,” said Mr. Johnson. “Our EBITDA reconciles to GAAP. End of story.”

Mr. Byrne’s claim, parroted by Mr. Johnson, that’s “EBITDA reconciles to GAAP” is gobbledegook. EBITDA is presented as a specific number; GAAP is a set of accounting principles. It makes no sense to claim that a specific number reconciles to a set of accounting principles. A specific number must be reconciled to another specific number.

As Mr. Antar properly points out, EBITDA, a non-GAAP financial measure that does not include an adjustment for stock-based compensation must be reconciled to a particular GAAP measure; specifically, net income or, in the case of, net loss.

As it turned out, after giving Mr. Antar such a dismissive public drubbing and insisting that’s treatment of EBITDA was right, Mr. Byrne and his cohorts evidently reconsidered their position.

On Nov. 10, 2008, filed an amended annual report for 2007, amended quarterly reports for the first two quarters of 2008 and its third-quarter report. With nary a peep, the company abandoned its non-compliant EBITDA and substituted “Adjusted EBITDA” properly reconciled to its net loss.

“Antar the Crook” was clearly right and “Wacky Patty” was clearly wrong.

The one-time dispute

On Jan. 30, announced its financial results for the fourth quarter and year ending Dec. 31, 2008. The company reported a loss of $12.7-million for the year on revenues of $834.4-million, but proudly announced a fourth-quarter profit of $1-million.

“After a tough three years, returning to GAAP profitability is a relief,” Mr. Byrne declared in his message to shareholders.

According to the pesky Mr. Antar, however, the touted $1-million fourth-quarter profit is another piece of accounting legerdemain that turns on’s improper treatment of a one-time gain of $1.8-million. Rather than a $1-million profit, Mr. Antar insists that should have reported a fourth-quarter loss of $800,000.

As noted earlier, did report a one-time gain of $1.8-million that, according to the company’s new chief financial officer Steve Chesnut, related to “payments from partners who were under-billed earlier in the year.”

“That ‘one-time gain of $1.8 million’ referred to above by CFO Steve Chesnut was actually an improper one-time cumulative adjustment of an accounting error,” Mr. Antar says, claiming’s treatment of the error violates Statement of Financial Accounting Standards No. 154. “ ‘under-billed’ partners earlier in the year and that is simply an accounting error covered by SFAS No. 154.

“To compound the problem, recognized the ‘one-time (gain) of $1.8 million’ using cash-basis accounting when it ‘received payments from partners who were under-billed earlier in the year’ instead of accrual basis accounting, which requires income to be recognized when earned.

“A public company is not permitted to correct any accounting error using cash-basis accounting.”

Mr. Antar further argues that, if an accounting error is material, a company must restate all affected prior period financial reports, rather than use a one-time cumulative adjustment to correct the error. Mr. Antar says the accounting error meets at least three materiality criteria under SEC Staff Accounting Bulletin No. 99. He claims that meeting just one materiality criterion requires the restatement of all affected prior reports.

According to Mr. Antar, by improperly using a “one-time gain” to correct its accounting error, changed a trend of 15 consecutive quarterly losses, hid a failure to meet analysts’ expectations and improperly reported a $1-million profit instead of an $800,000 net loss.

In a post on an Internet chat site, Mr. Byrne served up some thoughts about Mr. Antar’s latest allegations regarding’s financial reporting.

“Antar’s ramblings are gibberish,” Mr. Byrne wrote on Feb. 6. “Show them to any accountant and they will confirm. He has no clue what he is talking about.

“For example: when one discovers that one underpaid some suppliers $1 million and overpaid others $1 million. For those whom one underpaid, one immediately recognizes a $1 million liability, and cleans it up by paying. For those one overpaid, one does not immediately book an asset of a $1 million receivable: instead, one books that as the monies flow in. Simple conservatism demands this (If we went to book the asset the moment we found it, how much should we book? The whole $1 million? An estimate of the portion of it we think we’ll be able to collect?) The result is asymmetric treatment. Yet Antar is screaming his head off about this, while never once addressing this simple principle. Of course, if we had booked the found asset the moment we found it, he would have screamed his head off about that. Behind everything this guy writes, there is a gross obfuscation like this. His purpose is just to get as much noise out there as he can.

“In the last quarter he ignores a $4 million write-down. He says that we dispensed with a $3 million bonus for executives when it was really just $1 million. Etc. etc. It’s just a guy on a street corner, spouting gibberish, hoping someone will toss him a quarter.”

At least one certified public accountant, Ms. Coenen, who is also a certified fraud examiner, does not agree with Mr. Byrne’s assessment of Mr. Antar and his latest claims about’s accounting practices.

“Instead of coming clean, CEO Patrick Byrne instead deflects and digs the hole of lies deeper,” Ms. Coenen wrote in her Fraud Files blog on Feb. 9, going on to offer her opinion of Mr. Byrne’s Feb. 6 Internet post.

“Too bad he’s completely wrong,” Ms. Coenen wrote. “Again, accrual basis accounting works very simply. You book revenue when earned, and expenses when incurred. You don’t book things ‘when you find them.’ That’s simply not a part of accrual basis accounting.”

After providing a relevant excerpt from the New York CPA Journal regarding GAAP revenue recognition and delving a bit further into accrual basis accounting rules, Ms. Coenen closed out her remarks with an unflattering assessment of and Mr. Byrne.

“Sometimes it’s hard to tell whether Overstock and Byrne are engaged solely in deliberate manipulation, or whether there’s a good bit of incompetence involved as well,” Ms. Coenen wrote. “Overstock is the only public company I’ve seen which has to restate restated financial statements. The list of accounting manipulations continues to grow.”

Mr. Antar has forwarded his most recent concerns about to the SEC, but he does not expect much action from the U.S. regulator.

“I used to respect them,” Mr. Antar told Stockwatch. “Even as a criminal, I respected them because they were smart. They’re not like that any more.”

“They’re fucking morons!” an agitated Mr. Antar later exclaimed. “They’re dum-dums.”

“I’m not asking these guys to be experts on accounting, just get off their fucking asses, man!” he continued. “I can’t believe it!”

Meanwhile, is well off its 52-week high of $29.59 notched in July of last year and even further off its all-time high of $77.18 recorded on Dec. 6, 2004. With 92,600 shares changing hands in Nasdaq trading, closed at $8.67 on Feb. 19.

February 11, 2009: Conde Nast Portfolio (March Issue) – Preventing the Next Bernie Madoff, By Gary Weiss

A second variety of organizational deviants identified by Sherman—the ones with “goals that are deviant from societal norms or laws”—is the group Madoff obviously belongs to, as do the deceitful boiler-room subprime-lending operators that encouraged people to lie on their mortgage applications to get the deals done. Sam Antar, a convicted securities swindler, believes people like Madoff often don’t set out to become criminals. “He just started the scam and then it built on itself and he couldn’t get out,” suggests Antar, who served as chief financial officer of consumer-electronics retailer Crazy Eddie in the 1980s, when it was involved in several fraudulent schemes; now he lectures law enforcement on how to prevent white-collar crime.

Police corruption thrives when the watchdogs—the municipal government and the senior police officials—are indifferent or ineffective. Antar says the parallels with the Securities and Exchange Commission are compelling. The failures of its enforcement staff, starved for resources under chairman Christopher Cox, mirror the inability in past years to confront police corruption. Those failures were documented by Sherman and chronicled in such books as Robert Daley’s Prince of the City and Peter Maas’ Serpico, the story of a whistleblower (played by Al Pacino in the 1978 film) who fought NYPD corruption. Recently, the SEC’s handling of whistleblowers has also come under scrutiny because of the way it ignored Harry Markopolos, who had tried again and again since 2000 to call the agency’s attention to Madoff and his family.

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