One More Cup of Coffee Addendum
by ilene - October 21st, 2010 3:41 am
One More Cup of Coffee Addendum
By Scott Brown at Sabrient, Ilene at Phil’s Stock World, and special thanks to Sam Antar
Last night, we decided to replace the short in JOE, covered yesterday, with a short in GMCR for the DHH virtual portfolio. We noted:
There are many reasons that insiders may sell shares which have nothing to do with their perception of the company’s prospects or valuation. However, when a week after the last insider sale, the company discloses that the SEC is inquiring into the company’s methods for accounting for revenues, it starts to look more dark and mysterious. It is worth noting that Keurig accounted for over half of GMCR revenue last year, so when the President of Keurig is selling, it is worth a further look. When the SEC discloses an inquiry into the companies accounting it is worth more than a look. Multiple class-action lawsuits have been filed against GMCR since the announcement by the SEC, yet the stock has rebounded from a low of $26.87 to a close today of $31.31. Rumors of Nestle having interest in GMCR resurfaced on October 12, despite the SEC’s inquiry and pending class-action lawsuits.
To further examine our initial observation, we took a guided tour though the SEC filings, with Sam Antar, who specializes in reviewing SEC filings. The first thing we discovered on the SEC site was that the last date Michelle Stacy exercised 5000 options and then sold the stock for $37 was September 21, 2010. This transaction was reported in a Form 4 filing on Sept. 23, 2010.
Next, we looked at the most recent 8K Form filed and we found that the disclosure of the SEC inquiry occurred on September 28, 2010. However, notification of the SEC inquiry occurred eight days earlier, on September 20, 2010:
On September 20, 2010, the staff of the SEC’s Division of Enforcement informed the Company that it was conducting an inquiry and made a request for a voluntary production of documents and information. Based on the request, the Company believes the focus of the inquiry concerns certain revenue recognition practices and the Company’s relationship with one of its fulfillment vendors. The Company, at the direction of the audit committee of the Company’s board of directors, is cooperating fully with the SEC staff’s inquiry.
This information…
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DiggDARK HORSE HEDGE – One More Cup of Coffee Before You Go, GMCR
by ilene - October 20th, 2010 10:06 pm
DARK HORSE HEDGE – One More Cup of Coffee Before You Go, GMCR
By Scott Brown at Sabrient, and Ilene at Phil’s Stock World
Your sister sees the future
Like your momma and yourself
You’ve never learned to read or write
There’s no books upon your shelfAnd your pleasure knows no limits
Your voice is like a meadowlark
But your heart is like an ocean
Mysterious and darkOne more cup of coffee for the road
One more cup of coffee ‘fore I go
To the valley below – Bob Dylan
Green Mountain Coffee Roasters (GMCR) doesn’t at first glance seem like the type of company that would need to be “mysterious and dark” but when “pleasure knows no limits” it can down into a metaphorical valley. How does GMCR, engaged in the specialty coffee and coffee maker businesses, churning out quarterly profits that meet analyst expectations while growing at 61% per year over the past five years, and expected to grow another 35% over the next five years, end up at #18 on the Sabrient VCU short ranking?
The fact that Michelle Stacy, President of Keurig (patented single cup brewing technology for GMCR), exercised 30,000 options at $6.20 on August 13, 2010 and simultaneously sold the shares on the open market at $30.95 for gross proceeds of $928,500, again exercised 5,000 options at $6.20 on September 13, 2010 and simultaneously sold the shares on the open market at $35.40 for gross proceeds of $177,000 and a week later exercised another 5,000 shares from $6.20-$9.14 and simultaneously sold the shares on the open market at $37 for gross proceeds of $185,000 alone isn’t enough to raise any eyebrows or red flags.
There are many reasons that insiders may sell shares which have nothing to do with their perception of the company’s prospects or valuation. However, when a week after the last insider sale the company discloses that the SEC is inquiring into the company’s methods for accounting for revenues, it starts to look a bit more dark and mysterious. It is worth noting that Keurig accounted for over half of GMCR revenue last year, so when the President of Keurig is selling, it is worth a further look. When the SEC discloses an inquiry into the companies accounting it is…
DARK HORSE HEDGE – One More Cup of Coffee Before You Go, GMCR
by Sabrient - October 20th, 2010 9:59 pm
DARK HORSE HEDGE – One More Cup of Coffee Before You Go, GMCR
By Scott Brown at Sabrient, and Ilene at Phil’s Stock World
Your sister sees the future
Like your momma and yourself
You’ve never learned to read or write
There’s no books upon your shelfAnd your pleasure knows no limits
Your voice is like a meadowlark
But your heart is like an ocean
Mysterious and darkOne more cup of coffee for the road
One more cup of coffee ‘fore I go
To the valley below – Bob Dylan
Green Mountain Coffee Roasters (GMCR) doesn’t at first glance seem like the type of company that would need to be “mysterious and dark” but when “pleasure knows no limits” it can down into a metaphorical valley. How does GMCR, engaged in the specialty coffee and coffee maker businesses, churning out quarterly profits that meet analyst expectations while growing at 61% per year over the past five years, and expected to grow another 35% over the next five years, end up at #18 on the Sabrient VCU short ranking?
The fact that Michelle Stacy, President of Keurig (patented single cup brewing technology for GMCR), exercised 30,000 options at $6.20 on August 13, 2010 and simultaneously sold the shares on the open market at $30.95 for gross proceeds of $928,500, again exercised 5,000 options at $6.20 on September 13, 2010 and simultaneously sold the shares on the open market at $35.40 for gross proceeds of $177,000 and a week later exercised another 5,000 shares from $6.20-$9.14 and simultaneously sold the shares on the open market at $37 for gross proceeds of $185,000 alone isn’t enough to raise any eyebrows or red flags.
There are many reasons that insiders may sell shares which have nothing to do with their perception of the company’s prospects or valuation. However, when a week after the last insider sale the company discloses that the SEC is inquiring into the company’s methods for accounting for revenues, it starts to look a bit more dark and mysterious. It is worth noting that Keurig accounted for over half of GMCR revenue last year, so when the President of Keurig is selling, it is worth a further look. When the SEC discloses an inquiry into the companies accounting…
Inside the Flash Crash Report
by ilene - October 16th, 2010 7:43 pm
Pam Martens points out that in patching up May 6th’s market meltdown by breaking certains trades, “busts” only applied to trades occurring between 2:40 p.m. and 3 p.m. when the stock had moved 60% or more from its 2:40 p.m. price. "The busts that were allowed covered 5.5 million shares and two-thirds of these trades had been executed at less than $1.00… half of the share volume in these bizarre trades came from just two firms and half the time they were exclusively trading with each other." The report – amazingly – never names these firms which had their own bad trades undone by that controversial decision that left average investors with large losses. - Ilene
By PAM MARTENS, originally published at CounterPunch
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The breathlessly awaited government report that promised to shore up public confidence by explaining why the stock market briefly plunged 998 points on May 6, with hundreds of stocks momentarily losing 60 per cent or more of their value, was released last Friday, October 1. Its neatly crafted finger-pointing to a small Kansas mutual fund firm which has been around since 1937, was immediately embraced as mystery solved by the stalwarts of the corporate press. This was done with only slightly less zeal than bestowed on the story of Saddam Hussein’s weapons of mass destruction spun out of the George W. Bush administration.
The New York Times headlined with “Single Sale Worth $4.1 Billion Led to Flash Crash.” The Washington Post went with “How One Automated Trade Led to Stock Market Flash Crash.” The Wall Street Journal led with “How a Trading Algorithm Went Awry.” Hundreds of similar headlines followed in similarly expensive media real estate. But as with the rush to war on bogus intel, the corporate press may be further damaging its credibility with the American people by ignoring the dangerous market structure that emerges in a closer reading of this report.
The so-called Flash Crash report was the product of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) and consists of 104 pages of data that is unintelligible to most Americans, including the media that are so confidently reporting on it. It names no names, including the firm it is fingering as the key culprit in setting off the crash. Earlier media reports say the firm is…
Does Overstock.com CEO Patrick Byrne Know When to Shut Up, Especially While the SEC Investigates his Company?
by ilene - October 16th, 2010 12:26 pm
Does Overstock.com CEO Patrick Byrne Know When to Shut Up, Especially While the SEC Investigates his Company?
Courtesy of Sam Antar
During an ongoing SEC investigation into financial reporting violations by a public company, competent lawyers will advise management that the wisest course of action is to simply shut up. Not so, with Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne. He does not know when to stop blabbing away, misleading investors, and lying to the media – even during an ongoing SEC investigation of his antics.
??
For example, in 2009, I correctly reported in my blog that Overstock.com violated Generally Accepted Accounting Principles (GAAP) in accounting for its recoveries of certain offsetting costs and reimbursements amounts due to the company from its fulfillment partners (suppliers) who were under-billed in previous reporting periods, from Q1 2007 to Q 2 2008. Overstock.com should have restated its financial reports to recognize income when those offsetting costs and reimbursements were actually earned by the company in those previous reporting periods.
Instead, the company improperly recognized income as those amounts were collected in future accounting periods (Q4 2008 to Q3 2009) on a non-GAAP cash basis. In one instance, Overstock.com improperly reported Q4 2008 profits, even though the company should have reported a loss under accounting rules.
Despite many emails from me, Patrick Byrne stubbornly refused to correct his company’s GAAP violations and even fired Grant Thornton as its auditor for agreeing with my recommendations. Instead, Byrne opened up his big mouth and attacked me on a stock market chat board and during various earnings calls in an effort to discredit me. Byrne even hired internet stalker Judd Bagley to interfere with my divorce and pretext my children and relatives after I pointed out the company’s accounting violations.
 |
| Patrick Byrne while intoxicated |
The company’s pretexting operation also targeted dozens of other journalists, bloggers, critics, and their minor children, too. Big Picture (over 140,000 subscribers) blogger Barry Rithholtz called Judd Bagley a "possible pedarast." His family was spied on, too.
Eventually, the SEC started investigating Overstock.com and the company was forced to restate its financial reports. Patrick Byrne will have a difficult time explaining to SEC investigators why they should not find that Overstock.com’s GAAP violations were a deliberate scheme to manipulate earnings. At…
SEC Denies China’s Dagong of Market Entry After U.S. Debt Downgrade
by ilene - September 26th, 2010 9:13 pm
SEC Denies China’s Dagong of Market Entry After U.S. Debt Downgrade
Courtesy of asiablues at Zero Hedge
By Dian L. Chu, Economic Forecasts & Opinions
The U.S. Securities and Exchange Commission (SEC) on Thursday denied the application by China’s largest credit rating firm--Dagone Global Credit Rating Co.--to become a Nationally Recognized Statistical Rating Organization (NRSRO) in the U.S. 
The SEC cited concern regarding cross boarder supervision since “It does not appear possible at this time for Dagong to comply with the record keeping, production, and examination requirements of the federal securities laws."
Media report quoted an SEC official that Dagong is the first firm to be denied by the SEC since the regulations governing the application process went into effect in 2007.
Dagong’s claim to fame came with its first international sovereign ratings report released in July of this year. In the report, Dagone stripped the U.S. the AAA rating, while giving emerging economies like Brazil and China higher credit ratings than the US , the UK, and Japan. Those ratings widely contradict the ones assigned by the Big Three – Moody’s, Standard & Poor’s, and Fitch.
Dagong, then followed up with some sharp criticism of its western counterparts, and a verbal clash with Harold "Terry" McGraw III, whose company owns Standard & Poor’s credit agency.
So, it is of no surprise that Dagong immediately issued an angry rebuff calling the SEC’s decision discriminatory against China and a barrier specifically set for Dagong. It also took it to a few octanes higher –citing China’s sovereignty and financial assets safety are at issue here. From People’s Daily Online:
“….the contention by U.S. authorities… amounts to bias against Chinese credit-rating agencies. Dagong will not accept the NRSRO status at the price of betraying national sovereignty….. Dagong will consider conducting activities at the right time to protect its rights, including seeking legal actions against the SEC."
China Daily also cited Dagong statement that having China’s own say in credit rating in the United States is significant to safeguarding the security of China’s overseas financial assets. And Dagong aims to enter the U.S. market to protect China’s interests as the largest creditor there. As of July, China held $846.7 billion worth of U.S. Treasurys, according to official U.S. data. …
Great American Gary Aguirre “Cross Examines” in re: SEC’s FOIA Exemption
by ilene - September 17th, 2010 4:11 pm
Great American Gary Aguirre “Cross Examines” in re: SEC’s FOIA Exemption
Courtesy of Larry Doyle at Sense on Cents
I truly believe this could be the single most important and enlightening commentary ever put forth at Sense on Cents. Although it is a little lengthy and has some legalese, if you care about truth, transparency, and integrity in our nation, take the time to read and review. You will be better for it. I encourage you to share it with friends and colleagues.
Washington still does not get it.
I strongly believe the deeply embedded Wall Street-Washington incestuous relationship was central to the erosion of our economic foundation. While that incest must be extirpated if we are to regain our economic standing, we continue to suffer through “show trials” dealing with the critically important topic of pursuing transparency across our political and financial landscape. Regrettably, the media in general provides limited coverage to this ongoing pursuit. To that end, I welcome banging this drum and engaging those in our nation who will ask the hard questions and put forth aggressive propositions so real transparency can be achieved. Even if the pursuit comes up short, the effort and goals are beyond worthy. Let’s navigate.
Yesterday, the House Financial Services Committee chaired by Barney Frank held a hearing to address the SEC’s exemptions from Freedom of Information requests embedded in the Financial Regulatory Reform legislation. Congressman Frank rolled out the red carpet to SEC Chair Mary Schapiro. From the testimony, Frank offers:
Chairman Schapiro, let me say I appreciate your coming and I just want
to say at the outset no one, I think, does or should consider
this in any way any kind of criticism or indictment. And I
understand you — my own view is that you have significantly
improved the enforcement mechanism. I know Mr. Grisami (ph)
(Khuzami) couldn’t be in today because of impossible conflicts. But I
welcome him and what he’s been doing. So I — I want to make
very clear, I think everybody’s made it clear, we’re here in
a spirit of cooperation. We have a common enterprise (ph). We
have conflicting goals to some extent, which is tough
enforcement, but also complete openness.
Way to take the gloves off there, Barney. Have you ever heard anybody presenting an effective “cross examination”…
Five More Public Companies Who Need to Learn How to Properly Calculate EBITDA under SEC Rules
by ilene - September 12th, 2010 4:57 pm
Sam Antar makes a request to CFOs, Audit Committees, and auditors of public companies’ financial reports: study the SEC’s rules governing the calculation of non-GAAP measures such as EBITDA (earnings before interest, taxes, depreciation and amortization), and follow them. Correct the mistakes before the reports get filed so Sam doesn’t have to write an article and I don’t have to post it.
For example, Penn National Gaming (PENN) erroneously reported EBITDA as earnings before interest, taxes, depreciation, amortization AND charges for stock compensation, impairment losses, disposal of assets, losses from unconsolidated affiliates and the Empress Casino Hotel fire--that would be an "Adjusted EBITDA" or in PENN’s case, EBITDASCILDALUAECHFIRE.
To learn how to read a financial report and discover if the company you’ve invested in is calculating EBITDA properly or inflating this number, read Sam’s article. – Ilene
Five More Public Companies Who Need to Learn How to Properly Calculate EBITDA under SEC Rules
Courtesy of Sam Antar
It’s pathetic that so many public companies miscalculate EBITDA (earnings before interest, taxes, depreciation, and amortization) and violate Regulation G governing the calculation of non-GAAP measures such as EBITDA. It seems that too many CFOs, Audit Committees, and auditors don’t take the time to thoroughly review compliance with all appropriate SEC financial reporting rules.
Starting in 2007, I reported improper EBITDA calculations by Overstock.com (NASDAQ: OSTK). After a brutal yearlong public battle, Overstock.com’s embittered CEO Patrick Byrne finally changed his company’s EBITDA calculation to comply with Regulation G. For additional details, please read Lee Webb’s Stockwatch article and Richard Sauer’s book.
Last July, I reported apparently erroneous EBITDA calculations by Penson Worldwide (NASDAQ: PNSN) and Comtech Telecommunications (NASDAQ: CMTL).
In this blog post, I will report erroneous EBITDA calculations by five more public companies: A. H. Belo Corporation (NYSE: AHC), FirstService Corporation (NASDAQ: FSRV), Animal Health International, Inc. (NASDAQ: AHII), Schawk Inc. (NYSE: SGK), and Penn National Gaming Inc. (NASDAQ: PENN).
First, let’s review how EBITDA supposed to be calculated
According to the SEC Compliance & Disclosure Interpretations, EBITDA is defined as under Regulation G as net income (not operating income) before interest,…
Goldman Faces “Near Record Fine” In London
by ilene - September 8th, 2010 4:55 pm
Goldman Faces "Near Record Fine" In London
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Even this ‘near record fine’ is likely to be little more than a wrist slap, a manageable cost of doing business compared to the massive profits and bonuses obtained from such dealings.
It appears that financial regulations such as the Volcker rule are getting some traction with Goldman and their ilk, compelling them to spin off their proprietary trading desks to institutions that do not drink so directly from the subsidies of the Federal Reserve.
Still, regulation is not a set of rules, but a mindset to enforcement and investigation for the many, with no favoritism shown to the powerful few.
Financial fraud has been a major export from the US for the past ten years. As we have noted elsewhere, New York financial firms may find themselves persona non grata in many of the overseas markets, especially the sovereign financial asset markets, which they have abused repeatedly from their US and London centers.
Financial Times
Goldman now faces large fine in UK
By Megan Murphy and Brooke Masters in London
and Francesco Guerrera and Henny Sender in New York
September 8 2010 20:05Goldman Sachs is facing a near-record fine from the UK’s financial regulator following a five-month investigation into the investment bank’s international business initiated in the wake of fraud charges against the company in the US.
The fine, which could be announced by the Financial Services Authority as early as Thursday morning, will deal a blow to Goldman’s efforts to put the high-profile fraud case behind it following the bank’s settlement with the US Securities and Exchange Commission probe in July for $550m.
The largest fine handed down by the UK regulator came three months ago, when JPMorgan paid a £33.3m for failing to keep client money in separate accounts.
Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.
The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.
On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman
…
High Frequency Chicanery
by ilene - September 3rd, 2010 7:27 pm
High Frequency Chicanery
Courtesy of MIKE WHITNEY writing at CounterPunch
Here’s something to munch on from Dennis K. Berman in last week’s Wall Street Journal:
"Today, small investors are fleeing the equities markets in droves, according to data from the Investment Company Institute, pulling out a net $34 billion from stock funds so far this year…..They say, "I still feel like someone is screwing me……trading feels different than it used to."
Berman traces the problem to its source, the "inscrutable interplay between myriad exchanges and high-frequency traders, whose volume now accounts for an estimated two-thirds of all trading"…"a market that many perceive as tainted and prone to gaming by a cadre of insiders."
That sounds like a long-winded way of saying the market is rigged.
High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It’s high-speed robo-trading that oftentimes executes orders without human intervention. HFT allows one group of investors to see the data on other people’s orders ahead of time and use their supercomputers to buy in front of them. It’s called frontloading, and it goes on every day right under the SEC’s nose.
In an interview on CNBC, market analyst Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor."
Frontloading is cheating pure and simple, but rather than go after the "big fish" who run these enormous computerized skimming operations; regulators have been rolling up rogue traders who abscond with the trading code.
Here’s a blurp from wired.com:
"Monday’s arrest of Samarth Agrawal, 26, came nine months after a Goldman Sachs programmer was arrested on similar charges that he, too, stole his employers source code for software, his employer used to make sophisticated, high-speed, high-volume stock and commodities trades.
“The Securities and Exchange Commission is investigating the use of these programs that many believe give their users an unfair advantage over other traders. Nevertheless, stealing the code to these suspect programs remains illegal. ("Second banker accused of stealing high frequency trading code", wired.com)
Right; so stealing from stock cheats who are gaming the system is…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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