The Case Of The 200 Missing Employees

| About:, Inc. (OSTK)
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Honestly, folks, I don't know what more there is to say about my favorite source of corporate entertainment, (NASDAQ:OSTK). The company is so deep in the hole that you could barely hear its CEO, Patrick Byrne, as he mouthed the usual platitudes and excuses during Friday's conference call.

This company is a goner. Sales are down, losses are mounting, its inept management is running out of steam, the stock price is tanking and investors are fleeing. Bankruptcy is a real possibility. What more is there to say?

Oh, wait a moment, there is something new to say about Overstock. I call it "The Case of the 200 Missing Employees." I tell you, it's a mystery straight out of Agatha Christie. Two hundred employees inexplicably vanished from the company's roster during 2011.

As you may recall, at the beginning of this year Overstock said that it had laid off 50 workers from its workforce, which was then described as consisting of 1450 people in an article in the Deseret News at the time. (Yep, even a layoff of 50 people was significant enough that a Utah newspaper actually covered it.) The Salt Lake Tribune similarly reported that the layoff comprised 3% of its 1500-person work force.

As a matter of fact, Overstock didn't have 1500 people on the payroll prior to the layoff. According to the 10-K just filed by the company, it had "approximately 1,300 employees as of December 31, 2011," which was a few days before the layoff was announced.

That's a decline of 200 employees since its 10-K for 2010, which disclosed that the company had 1,500 employees as of December 31, 2010.

Somehow, 200 employees-- 13 percent of the workforce! -- just vanished into thin air during 2011. It's not clear when the 50-person layoff took place, whether it was before or after the turn of the year.

Could it be that the layoff of 50 people, announced in early January, was in addition to the 200 people shed from the workforce during 2011? That there are actually just 1,250 people on staff, a headcount reduction of 250--a 17% slash of the workforce--from 2010?

We don't know, and we obviously aren't going to find out from the terminally opaque Overstock and the terminally cowardly Utah press corps. As I pointed out at the time, Overstock management gave conflicting statements concerning the layoffs, a point that nobody in the Utah media picked up on.

I tell you, if the Salt Lake Trib, Deseret News or AP Utah bureau had covered the gunfight at the OK Corral, they'd have made it seem like a kaffeeklatsch. I can see it now: "Cowboy CEO Ike Clanton said he remained optimistic for Fiscal Year 1883, and looked forward to going a few rounds with Wyatt Earp."

Another point to ponder: How come Overstock felt that 50 laid off employees was worth a public disclosure, but didn't disclose that it had shed three or possibly four times that number during 2011?

Not only has there been not a word in the Utah media on the vanishing Overstock employees, but the little that has appeared on the company's apocalyptic 2011 results -- this cursory mention in the Salt Lake Trib and a similar item on the AP wire -- has been sparse and muted, unsurprisingly. It's been ignored completely by the shameless Deseret News.

As I've mentioned in the past, the Connecticut press would have feasted on such a red-ink-spewing, cyberstalking carcass were we to have been blessed with one when I was a cub reporter there in the Seventies.

On Tuesday, Overstock shares continued their decline and closed down 8.7%, to end the day at 5.37. This means that the company is closer than ever to the "death spiral" that Sam Antar described in his blog the other day.

If and when Overstock shares dip below $5, it officially becomes a penny stock. Stocks trading so low must be automatically ejected from many institutional portfolios, and they are no longer marginable, so they will be avoided by the many investors who like to buy stocks on margin.

So the stock price just goes down and down and down.

The next step the company must take is to raise capital. As Sam observed in his blog post, the SEC took the inexplicable action of granting Overstock a waiver and allowing it to file a recent S-3 registration statement, even though it was in violation of the law.

I imagine that the SEC was trying to cut Overstock some slack. But that was foolish. Further share issuance will have an immediate and dilutive effect on the share price, and further setbacks -- such as an adverse action in one of its many lawsuits, or creditors stiffening their payment terms -- could push Overstock over the edge. That would crush anyone stupid enough to buy shares in any new offering.

If that scenario takes place, the SEC will have some 'splaining to do. What the SEC should do is to strictly enforce the law. Overstock is the last company on earth that should be cut slack when it comes to enforcing the securities laws.

Meanwhile the market is extracting its own pound of flesh from Overstock shares. If there are any further setbacks -- such as more heat from California prosecutors or more bad news from the Canadian libel suit -- another share-price apocalypse may be in the offing. Ditto for another spate of patent-troll lawsuits. This broke company just can't afford more legal bills.

I wonder if Fox News is going to continue to present Patrick Byrne as a shining example of a "job creator," now that he has done such a exemplary job of running his company into the ground?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.