For the last several days, I’ve been trying to arrange an interview with Bidz.com (BIDZ) CEO David Zinberg to talk about this week’s report from Citron Research
and a variety of related topics. Late Thursday afternoon, I received an
email from the company’s outside investor relations firm saying that
Zinberg was not immediately available. Instead, they provided me with a
statement attributed to Zinberg addressing some of the questions I had
asked to talk to them about. I’ve posted it his responses below.
On TV pricing on the site:
Bidz.com is not involved in setting the bid prices for TVs or shipping the TVs to auction winners, and Bidz.com derives no revenue from the auction of TVs. I did not monitor the auction prices for TVs as they occurred, and am now researching the bidders. It is important to note, as I’ve said publicly, that regardless of the bid, auction winners can elect whether or not to actually purchase the merchandise.
In an attempt to diversify our products for consumers, we allowed merchants to auction their goods on our site. A handful of auctions for TVs caught the attention of a variety of observers, including short sellers, who may or may not have been involved in the actual bidding. To avoid any perception of inappropriate business practices, Bidz.com is reviewing our practice of allow[ing] our certified merchants to list auctions through our site. This TV merchant will no longer be listing auctions on Bidz.com, and we may or may not take similar action with other merchants.
Comment: I also talked this afternoon to Matthew Mills, the former Bidz.com COO who now runs Clear Solution Partners, the third party merchant that was selling TVs on the site. Mills, who is a shareholder in the company, but left as an employee in 2003, said that after the conference call the company held with the Street, which included much discussion of over-priced TVs, he “decided it would be a good idea for us to pull away for now.” He also predicts that “you will see certified merchants disappear altogether” from the site. Mills also said the much discussed $11,075 television auction failed to close.
Zinberg on AIG Labs, the company’s appraisal service. Citron noted that AIG had a picture on its web site that showed a building with an AIG logo; he found that the logo had been edited into the picture; the photo has since been removed from the site:
The company has a 20- year history, does reputable work for a wide variety of clients, and is in good standing with the Jewelry Board. Bidz recently began its relationship with AIG, and plans to further research the company to determine whether it adheres to accepted business practices. We will also look into developing relationships with other appraisers.
Why was the very large yellow diamond taken off the home page?
The diamond was an unusual experiment for Bidz.com in that it is a very high priced item. We do not verify available funds of bidders, in the same way that no store asks for a credit check before you can look at the merchandise. In this case, though, following the attention the bidding has received, we examined the bids and contacted the bidders to ascertain their sincerity. The highest genuine bid was for a little over $63,000, and so we reset the last bid at that price.
We are currently discussing new policies and procedures that could let us, for very high ticket items, check the bidders’ ability to pay before an auction is complete. As for moving the diamond off the home page, we determined that the item had attracted sufficient attention in recent weeks, and decided to put other merchandise on the prime real estate of our home page. As of the time of this writing, the diamond is still easy to find on the site. The auction closes at 7pm PT today.
Comment: The final price on the diamond was $75,407.
On the company’s relationship with Saied Aframian, and short-seller assertions that Aframian at one point held the mortgage on Zinberg’s house:
Mr. Aframian does not hold the mortgage on my house and has never held a mortgage on my home. Years ago, when I started Bidz.com, I backed my business with my personal assets, including my home. This is a common practice for entrepreneurs. Some companies that I did business with, including Los Angeles Jewelers, did have a lien but that was years ago. I stated publicly on a conference call with the investment community that I was unaware Mr. Aframian had a criminal record. I stand by that statement.
On the conflict between Zinberg’s statement on the conference call that Aframian is a manager, but not an owner, of L.A. Jewelers; and Bidz.com SEC filings that says Aframian in fact is an owner of that company:
A recent Bidz filing did say that, and the statement is inaccurate. The filing is being corrected to reflect his exact role with the company. Mr. Aframian is an employee of Los Angeles Jewelers. The business is owned by his brothers.