The Securities and Exchange has expanded its continuing investigation of Bidz.com (NASDAQ: BIDZ) to include

the Company’s co-op marketing contributions and minimum gross profit guarantees.

A message to any Democrat, Republican, or Independent lawmaker who is thinking of abolishing or weakening the Sarbanes-Oxley Act of 2002. As a convicted felon, who committed his crimes in cold blood and with callous disregard for my victims, I will publicly endorse each and every one of you as a champion of the white collar criminal class that are a cancer on the integrity of our great capitalist economic system. If you abolish or weaken Sarbanes-Oxley, you will make it much easier for corporate white collar criminals to cook their books and defraud investors.

According to Floyd Norris's column in the New York Times column:

Patrick Byrne is afraid to answer questions about Overstock.com's (NASDAQ: OSTK) continuous violations of Generally Accepted Accounting Principles (GAAP) and SEC disclosure rules. Because of those violations, Overstock.com's current financial reports cannot be accurately compared to reports in corresponding prior periods.

In its latest Q3 2009 financial report Overstock.com disclosed a new inquiry by SEC’s Division of Corporation Finance regarding its 2008 Form 10-K/A (amended 10-K report) and its June 30, 2009 Form 10-Q. The company did not disclose the nature of that inquiry.

Apparently, Overstock.com (NASDAQ: OSTK) is going to stubbornly tough it out and force the Securities and Exchange Commission to take enforcement action to make its financial reports comply with Generally Accepted Accounting Principles (GAAP). The SEC re-opened its investigation of Overstock.com in response to a series of investigative reports by this blog documenting continuing GAAP violations by the company and other false and misleading representations to investors by its management team, led by CEO Patrick M. Byrne.

Flawed financial reports incorporated in new registration statement

Last week, the Securities and Exchange Commission Enforcement Division took the unusual step of re-opening an investigation of financial reporting irregularities at Overstock.com (NASDAQ: OSTK) after dropping a previous investigation just fifteen months earlier in June 2008. The SEC re-opened its probe of Overstock.com in response to a series of investigative reports by this blog documenting continuing violations of Generally Accepted Accounting Principles (GAAP) by the company and false and misleading representations to investors by its management team, led by CEO Patrick M. Byrne.

A desperate Patrick Byrne is trying to paint himself as the victim of a vendetta by short sellers, the SEC, the press, and other imagined enemies. Byrne has orchestrated a vicious intimidation and smear campaign against company critics (including me) in an attempt to deflect any criticism of his misdeeds. (Note: For more information see Joe Nocera's New York Times Column here, Gary Weiss blog post here, and my blog post here.)

Overstock.com (OSTK), led by masquerading stock market reformer CEO Patrick Byrne, can’t seem to maintain proper internal controls for financial reporting. Just last Friday, Overstock.com disclosed that it improperly issued an extra 201,421 unregistered shares of common stock in connection with the company’s 401-K Plan. The company had to file a new registration statement with the Securities and Exchange Commission relating to those improperly issued unregistered shares. In addition, the company disclosed that it “may be subject to civil and other penalties by regulatory authorities as a result of the failure to register these transactions.” See below:

Note 8 — Unregistered Shares of Overstock.com

For certain key Bidz.com (BIDZ) insiders it seems that diamonds are not forever as they continue selling shares, while the company buys back its stock, faces a Securities and Exchange Commission investigation into its accounting practices, and defends several lawsuits claiming securities and consumer fraud.

Company buys back stock while two key insiders sell their shares

Documentation obtained by this blog shows that Carl Caserta, who in 1991 was barred by the Securities and Exchange Commission from “association with any broker, dealer, or investment advisor” still has an available, current, and active email address (carl.caserta@interoil.com) at InterOil (IOC). Other documentation obtained by this blog show that Caserta has continued helping InterOil promote its stock to investors. That documentation has been delivered to securities regulators. However, a January 2007 New York Times article reported that Caserta “stopped working for InterOil” after the company found out that he was barred from the securities industry by the SEC.

According to a 2005 report by short seller Citron Research, InterOil used Lighthouse Capital as its investor relations agent. As a principle of Lighthouse, Caserta’s job was “bringing InterOil around Wall Street attempting to attract buyers to the stock.” In 2007, the New York Times made inquiries to both InterOil and Lighthouse Capital about Caserta’s role in helping InterOil promote its stock to investors:

Bidz.com (BIDZ) should seriously consider replacing Stonefield Josephson Inc. as its auditors. According to a March 2007 Public Company Accounting Oversight Board (PCAOB) Inspection Report, Stonefield Josephson, Inc. was cited for significant deficiencies in five of thirteen audits reviewed or about 38.5% of audits sampled. See below:

The scope of the inspection procedures performed included reviews of aspects of the performance of 13 of the Firm's audits of the financial statements of issuers. Those audits and aspects were selected according to the Board's criteria, and the Firm was not allowed an opportunity to limit or influence the selection process. The inspection team identified matters that it considered to be audit deficiencies.

Convicted felon turned fraud fighter Barry Minkow, co-founder of Fraud Discovery Institute or FDI, issued a report citing potential independence and conflict of issue problems between Medifast Inc. (NYSE: MED) and their auditors, Bagell, Josephs, Levine & Company L.L.C. In addition, a recent Public Company Accounting Oversight Board (PCAOB) inspection report raises serious questions about the quality of audits conducted by Bagell, Josephs, Levine.

See excerpt from FDI press release (.pdf) below:

The Children’s Place (NASDAQ: PLCE) is violating Securities and Exchange Commission Regulation G governing non-GAAP financial measures in its financial reports. In its most recent earnings release for Q1 2009, Children’s Place reported a non-GAAP financial measure known as “Adjusted income from continuing operations net of income taxes” which is computed by eliminating certain “unusual or one-time items” less the related income tax effect from “Income from continuing operations net of income taxes.”

However, as I will detail below, SEC Regulation G prohibits:

InterOil Corp (NYSE: IOC) has no proven oil and gas reserves. They may not have any "commercially viable reserves" at all.

However, those facts have not stopped Vice President of Investor Relations at InterOil Corp, Mr. Wayne Andrews from privately hyping that “we’ve got over 3 trillion cubic feet of natural gas, certified by resources by the number one Canadian engineer.”

Bidz.com (NASDAQ: BIDZ) which is already under investigation by the Securities and Exchange Commission into its inventory accounting practices and is being sued for alleged shill bidding on its web site, is now facing several class action lawsuits alleging securities fraud and a new investigation by the Federal Trade Commission into its email marketing practices.

Last week, Barrack, Rodos & Bacine and Sarraf Gentile filed a class action lawsuit alleging securities fraud by Bidz.com and David Zinberg (CEO and President), based on issues raised in reports by short seller Citron Research (details of Citron reports here and here):

Overstock.com (NASDAQ: OSTK) and its management team led by its CEO and masquerading stock market reformer Patrick Byrne continued its pattern of false and misleading disclosures and departures from Generally Accepted Accounting Principles [GAAP] in its latest Q1 2009 financial report.

In Q1 2009, Overstock.com reported a net loss of $2.1 million compared to $4.7 million in Q1 2008 and claimed an earnings improvement of $2.6 million. However, the company's reported $2.6 reduction in net losses was aided by a violation of GAAP (described in more detail below) that reduced losses by $1.9 million and buybacks of Senior Notes issued in 2004 under false pretenses that reduced losses by another $1.9 million.

Overstock.com's (OSTK) earnings conference call is scheduled to start on Wednesday, April 22, 2009 at 3:00 PM Eastern. Therefore, I have submitted the questions below for CEO Patrick Byrne to answer. Before asking each question, I provide the context of my questions. Let's see if the masquerading stock market reformer Patrick Byrne has the guts to provide a detailed truthful response to each and every question.

To Patrick M. Byrne:

Senior Note Repurchases

As of December 31, 2008, Overstock.com reported that $67.5 million of Senior Notes were outstanding. Those notes were issued in November 2004. Since that time Overstock.com has disclosed that there were material weaknesses in internal controls and that its revenue accounting did not conform to GAAP and SEC disclosure rules from the company’s inception (day one). In addition, financial reports from Q1 2003 to Q3 2004 (periods before the Senior Notes were offered) have been restated twice. Recently, Overstock.com has been buying back such notes at a discount or profit by paying investors less than the face amount of such notes.

After Wednesday's stock market closed, Overstock.com (NASDAQ: OSTK) announced the resignation of James V. Joyce from its Board of Directors. However, Overstock.com's press release made no reference to a $1,250,000 payment for the termination of consulting services to Icent LLC, a management consulting company headed by Mr. Joyce. Overstock.com left investors the mundane task of finding out about the $1,250,000 termination payment by disclosing it in a separate SEC filing. See below:

Overstock.com press release:

The Fraud Discovery Instititute (FDI) led by my close friend, convicted felon,turned fraud fighter, Barry Minkow, has issued a new report (.pdf) entitled, "Ten Red Flags for Fraud at Speedway Motorsports, Inc. (TRK)." Minkow started a new website called SpeedScamMotorSports.com and posted a You Tube Video to explain details of his investigative report.

To Grant Thornton (new auditors for Overstock.com (OSTK)):

When Crazy Eddie was gearing up to go public, many of the top accounting firms clamored for our business. Some accounting firms passed on taking us as a client (smart move) and others continued to compete for our business (dumb move).

After the market close Monday, Bidz.com (NASDAQ: BIDZ) disclosed that the Securities and Exchange Commission started a formal investigation of the company's inventory accounting practices and other matters:

The Company was notified recently by the SEC of a formal investigation relating to certain aspects of its inventory accounting practices, as well as other matters. The Company intends to fully cooperate with the SEC regarding this matter. The Company remains confident its inventory accounting is correct and in full accordance with GAAP.

So far, Overstock.com (NASDAQ: OSTK) has stubbornly refused to correct recent Q4 2008 GAAP violations, exposed last week by this blog that allowed the company to improperly report a $1 million profit, rather than an $800,000 net loss. Instead on last Friday, Overstock.com CEO Patrick Byrne was caught trying to make excuses to readers on a stock bulletin board, using an alias in an unsigned post. After I complained in emails to the company and the Securities and Exchange Commission, Byrne removed his unsigned post (.pdf) and posted the same nonsense (.pdf) with his real name attached to it. I'll have more to say on that, later.

Overstock.com violated accounting rules to report first quarterly profit after 15 consecutive quarterly losses