Because the subprime mess hasn't been invigorating enough, Citigroup (NYSE: C) will now have to go to court to deal with a lawsuit brought by Parmalat, the Italian dairy company that collapsed under the weight of a massive accounting scandal back in 2003.

Enrico Bond, who was brought in to run Parmalat by the Italian government, is reportedly seeking $2-4 billion in damages from Citigroup. Parmalat claims that Citigroup was aware of the company's treacherous finances, and concealed and helped to conceal the truth from investors.

According to Paramalat, "Citigroup faces a very serious charge at the trial in New Jersey - that its bankers helped the corrupt insiders dress up Parmalat's financial statements and loot the company over a number of years."

Citigroup countered that "Citi is a victim of Parmalat's fraud and is confident that the merits of our position will be demonstrated in court."

Of the 50+ business-related books I read each year, maybe 15 were worth reading, in retrospect. Then another five of those are memorable -- in a good year. Hedge fund manager David Einhorn's book Fooling Some of the People All of the Time leapfrogs both of those categories, and establishes itself as a classic of business writing.

The story behind the book is intriguing. It's actually amazing that it ever got published, and tremendous credit should be given to Wiley for taking a chance with such an unconventional tale. Here's the deal: In a 2002 speech at a charity event, Greenlight Capital hedge fund manager David Einhorn gave a speech at a charity event. Asked to talk about his favorite investment idea, he spent 15 minutes explaining why he believe that Allied Capital (NASDAQ: ALD) was a financial crime in progress, ripping off investors and taxpayers as a Small Business Administration lender. Einhorn presented compelling evidence of aggressive accounting and indeed fraud, and disclosed that he was short the stock.

The speech made headlines and the stock tanked. Over the past six years, Einhorn has continued to beat the drum against Allied Capital, presenting information to regulators, reporters, and investors.

Last week I wrote about Barry Minkow's discovery that Herbalife (NASDAQ: HLF) president and COO Gregory Probert had lied on his resume, claiming to have an MBA that he didn't have.

Goldman Sachs analyst Simeon Gutman opined that the credentials flap didn't matter, and that he'd be surprised if Probert lost his job because "not only does he oversee many of Herbalife's day-to-day operations, he is often regarded as a key strategic thinker for the business."

Ooops. In a press release today Herbalife reported "record first quarter results." But wait! In a press release on April 4, Herbalife announced that "Herbalife Ltd. will release its first quarter 2008 financial results after the close of trading on the NYSE on Monday, May 5, 2008."

And now they decided to ambush investors with them today. What gives? Glad you asked. Buried at the bottom of the press release, we find this:

Chairman and CEO Michael O. Johnson accepted President and COO Gregory L. Probert's resignation effective April 30, 2008. The misstatement of Probert's academic credentials has been a matter under review by the board of directors. Given the company's unwavering commitment to the highest standards in business ethics, the company had no other choice but to accept the resignation.

The earlier than announced release of the first quarter results is a brazen -- and desperate -- effort at spin control.

I have to wonder: how much of a commitment to the "highest standards in business ethics" is Herbalife demonstrating when it buries bad news in quarterly results reported a week earlier than they said they would be?

I'll be interested in Mr. Gutman's feelings on the stock now that the company is without its "key strategic thinker."

As Herb Greenberg writes, "the beat goes on."

Connecticut Senator Chris Dodd has joined the baloney brigade -- the term Gary Weiss coined for the tinfoil hat crowd of conspiracy theorists who blame corporate problems on short-sellers.

Referring to the collapse of Bear Stearns, which some have blamed on shorts, Senator Dodd said that "This goes beyond rumors. This is about collusion."

Hold up. So Bear Stearns didn't collapse because of massive losses and a balance sheet like something out of a 1950s horror movie? No, apparently not. Bear Stearns collapsed because short sellers were betting it would collapse.

But isn't that like saying that the Patriots lost the Super Bowl because people bet against them in Las Vegas? The soaring short interest in Bear Stearns was an indicator of the company's problems, not a cause of them. The fact that JPMorgan needed guarantees from the Federal Reserve to acquire the company is proof of that.

The turmoil in the capital markets has led to some great music: In the Hamptons and H-E-D-G-E F-U-N-D from Merle Hazzard and this nice riff on "We Didn't Start the Fire."

I can't find an audio recording of it online, but here are the lyrics to Colorado securities lawyer Phil Feigin song "Churn, Churn, Churn", to be sung to the tune of "Turn, Turn, Turn", courtesy of the Denver Post. I wouldn't expect more music from Mr. Feigin anytime soon. The meltdown in subprime should keep securities lawyers busy for a long time ...

Sell everything, churn, churn, churn,
Who needs a reason? Churn, churn, churn,
Make a loan for every purchase under Heaven.

AP reports that Countrywide Financial Corp (NYSE: CFC) lost $893 million in the first quarter. That $1.60 a share loss was not exactly what analysts had forecast -- they were looking for a profit of two cents a share.

Meanwhile the LA Times reports that Countrywide CEO Angelo Mozilo took in $10.8 million and cashed out $121.5 million in stock gains as his company got hammered by losses on sub-prime loans in 2007. Mozilo also enjoyed perks worth $176,513, including $44,454 in rides on the company's jet; $23,755 in automobile use; $8,581 in country club dues; and $31,238 in company-paid tax and investment advice. Mozilo faces an informal U.S. inquiry into his stock sales.

And Countrywide's financial condition is deteriorating fast. It set aside a $1.5 billion reserve to cover loan up 62% from $925 million in the fourth quarter of 2007. Moreover charge-offs totaled $606 million during the first quarter. Fortunately, Countrywide has an exit strategy. In January, Countrywide agreed to sell itself to Bank of America (NYSE: BAC) for about $4 billion in stock. The question is whether Bank of America will pull out of the deal now that it sees the rising costs it will incur if it moves forward. Since Countrywide trades 15% below that takeout price, the market has its doubts.

Investors don't seem happy with today's announcement -- the stock was down 5% in premarket trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

39-year old David Einhorn runs a hedge fund with assets under management of $5 billion, but he isn't content with that. Today's Wall Street Journal reports (subscription required) on his new book, Fooling Some of the People All of the Time: A Long Short Story, detailing his public crusade against Allied Capital (NYSE: ALD), which he has accused of fraudulent accounting. Mr. Einhorn is short the stock.

In the book, he also lashes out at the SEC, which has been the target of criticism from fraudsters, fraud-busters, and the anti naked short selling baloney brigade.

Einhorn told the Journal that "The SEC is run by a corporate advocate, not an investor advocate, so investors are getting a false sense of security."

That's a pretty serious criticism, but it seems to be supported by some of the commission's recent actions, including its decision to make it even tougher for investors to hold underperforming directors accountable.

I ordered a copy of the book a few days ago and will post a review as soon as possible.

A few days before reports surfaced of topless photos of the teen star set to appear in Vanity Fair, struggling clog-maker Crocs (NASDAQ: CROX) signed a licensing deal to market "an all new collection of footwear and accessories inspired by the smash hits, Hannah Montana and High School Musical, and the upcoming Disney*Pixar film Wall-E."

Disney spokesman Patti McTeague lashed out at the magazine for the spread: "Unfortunately, as the article suggests, a situation was created to deliberately manipulate a 15-year-old in order to sell magazines."

Cyrus took responsibility herself in a prepared statement: "I took part in a photo shoot that was supposed to be 'artistic' and now, seeing the photographs and reading the story, I feel so embarrassed. I never intended for any of this to happen and I apologize to my fans who I care so deeply about."

Whether she'll be able to recover remains to be seen. It immediately reminds me of the Rolling Stone cover featuring David Cassidy, and the interview that portrayed him as less family-friendly than he was thought to be. I'm no expert on Partridge Family lore, but I understand that the group's popularity waned following that incident.

If that happens with Ms. Cyrus too, Crocs will need to find a new savior.

John McCain is famous for many things. One of those is the McCain-Feingold Act designed to limit the role of corporate money in politics. But his actions suggest an eagerness to accept corporate money as a means to his political ends.

Here are three:

• Protects campaign contributor from S&L regulators costing government billions. In the 1980s, McCain intervened to keep regulators away from Charles Keating, a Savings & Loan operator, who contributed to McCain's campaign and let McCain's wife co-invest in a real estate deal. Keating's Lincoln Savings and Loan ultimately failed, costing taxpayers $3.4 billion.
• Sways $100 billion U.S. Air Force contract to European company. In February the Air Force awarded a $100 billion contract for refueling Tankers to EADS, the parent of Airbus, and Northrop Grumman (NYSE: NOC). As I posted, McCain's campaign finance chair was a lobbyist for EADS who arranged to send much of this contract to non-U.S. workers. McCain now employs the people who lobbied for EADS on his own staff. EADS retained The Loeffler Group to lobby for the tanker deal in 2007. Loeffler Group lobbyists on the project included Tom Loeffler, who lobbies for EADS and serves as McCain's national finance chairman and Susan Nelson, who left Loeffler and is now the campaign's finance director. EADS employees donated $14,000 to McCain's presidential campaign, more than any other member of Congress this election cycle; and

Today's Wall Street Journal reported that Herbalife Ltd. (NASDAQ: HLF) President and COO Gregory Probert had lied on his resume and does not hold the MBA that filings with the SEC claim he does.

The stock is down more than 8%, but Goldman Sachs analyst Simeon Gutman says that the credentials flap has ""has no fundamental implications" but that it "may just take some time for management credibility to be restored."

There are a couple of problems with this analysis. First of all, issues of management integrity absolutely do have fundamental implications, because they raise questions about what you can trust. Was Probert's MBA the only false statement in the company's SEC filings? Probert knew the company's filings contained an untrue statement, so we know that at least one member of Herbalife's senior management is OK with making false statements to investors.

Investors who lost money in Enron and Worldcom would probably be surprised that dishonest management has "no fundamental implications." Warren Buffett has often said that when looking at potential investments, the most important factor is "honest management." Something tells me he knows more about management that Mr. Gutman.

FT.com reports that spreading a false rumor and selling short ahead of that rumor can get you into trouble. Paul Berliner is one such short-seller charged with spreading false stories about the Blackstone Group (NYSE: BX)'s acquisition of Alliance Data Systems (NYSE: ADS) while selling ADS shares short. If the SEC is serious, this could lead to other indictments since this practice appears rampant.

In this case, the SEC had evidence. On November 29 Berliner sent instant messages to traders at brokerage firms and hedge funds suggesting that Blackstone's deal to acquire ADS for $81.75 was being renegotiated at $70 a share. The rumor was picked up by the media and caused ADS's shares to fall 17%. Berliner agreed to settle the charges to disgorge $26,129 in profits, pay a $130,000 fine, and is banned from working for any broker or dealer.

As I posted last month, I received reports that hedge funds went a step further than Berliner. In that case, hedge funds may have caused the collapse of The Bear Stearns Companies (NYSE: BSC) and profited from its fall. A hedge fund manager in that post said: "Bear's collapse didn't surprise me. We've been short Bear for five days. All the hedge funds have been pulling their prime brokerage business from Bear."

If that hedge fund manager was telling the truth, does that make what he did legal?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Today's Wall Street Journal reports that (subscription required) Herbalife (NYSE: HLF) president and COO Gregory Probert never received the MBA listed in his biography that appears in reports the company has filed with the Securities & Exchange Commission.

The resumé embellishment was uncovered by Barry Minkow, a former fraudster turned fraud investigator.

In an e-mail to the Journal, Probert wrote that he almost completed an MBA at Cal State, but that "the truth is that my vanity prevailed and I did not take action" to correct Herbalife's biography "even though I was aware it was not accurate ... I suppose that some of us who have been blessed with a certain degree of good fortune are tempted to see the paths we took in romantic versus strictly factual ways. I was wrong for succumbing to my vanity and apologize for doing so."

What? He apologizes for not correcting Herbalife's biography of him? It's not like Herbalife made it up. He should be apologizing for "taking action" to lie to his employer and investors. Lying about credentials is not an error of omission. It's a deliberate error of commission, and from the email to the Journal, he doesn't appear to be taking full responsibility for that.

At 10 p.m. last night, Herbalife put out a press release announcing that "Officials at California State University, Los Angeles confirmed that Probert was enrolled in the graduate school MBA program for 12 quarters in the 1980s. The company is reviewing the matter and, upon completion of this internal investigation, will take any appropriate action."

Minkow, who is short Herbalife's stock, has accused the company of perpetrating a large fraud. This latest find would seem to raise grave questions about the integrity of at least one of the company's senior executives.

TheStreet.com's Jim Cramer says this lender gave money to anyone with a pulse, and the shareholders are left holding the bag.

For pure laughs, go read the National City (NYSE: NCC) (Cramer's Take) conference call yesterday, the one where they destroyed what was remaining of their common shareholder base with the partial takeunder by Corsair, an unknown private-equity fund that surfaced to inject $7 billion to save the bank.

We have had some remarkably poorly run banks in this go-round of subprime, including Downey Savings (NYSE: DSL) (Cramer's Take) (takers anyone?) Wachovia (NYSE: WB) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), as well as some nonbank fiascos like E*Trade (NASDAQ: ETFC) (Cramer's Take) and CIT (NYSE: CIT) (Cramer's Take).

But this Nat City takes the cake. They have to be the most stupid and least rigorous lender since the S&L crisis. They have $10 billion in home equity loans that have got to be among the worst ever issued. I swear, I bet that many of these are going to turn out to be out-and-out fraud by the borrowers. Miraculously, Nat City found an even more stupid soul, Merrill's (NYSE: MER) (Cramer's Take) Stan O'Neal, to sell its main originator of this junk to, something that brought O'Neal down and almost brought Merrill down. Some would say that the latter is still in question. I have no idea what would have happened to NCC if they hadn't sold it before the height of the fraud, the first quarter of 2007.

Former Crazy Eddie CFO and sometime Overstock.com (NASDAQ: OSTK) critic Sam E. Antar has posted an item on his blog accusing that company of a "stock market manipulation scheme."

Read Overstock.com and Patrick Byrne: Anatomy of a Stock Market Manipulation Scheme – First Quarter Earnings Release here.

In the post, Antar alleges that the first quarter earnings press release issued on Friday was "intentionally timed with expiration of options to manipulate the market (i.e., as a "short squeeze") and to bury and downplay grave news of a criminal investigation in California."

Analyzing the company's numbers, Antar points out that the company's revenue from its auction business declined more than 44% year-over-year, in spite of CEO Patrick Byrne's claim as recently as January that "things look better from here" for the auction site.

Antar accuses the company of violations of SEC rule 10b-5: interesting given that the company is currently the target of an SEC investigation.

Here are a few of my past posts on the company that one securities lawyer affectionately refers to as OverSchlock.com:

Shop at Overstock, Support Cyberstalking.
Patrick Byrne, Hypocrite
Patrick Byrne Defending USXP Fraud?
More Goofy Press Releases
Byrne overpaid at $0?

Overstock.com (NASDAQ: OSTK) reported impressive numbers yesterday -- and by impressive numbers, I mean another loss years after projections of profitability -- and its shares shot up more than 30%.

Gary Weiss reported on the less optimistic part of the press release that the company issued, but I'd like to take a second to point out something to investors. Even if the company's fundamentals are improving, this is still one of the creepiest public companies on the planet and it's wasting shareholder money on its creepy stalking campaigns.

If you go to DeepCapture.com -- CEO Patrick Byrne's website for trashing critics including Gary Weiss, Jim Cramer, Eliot Spitzer, and a couple of message board posters you've probably never heard of -- in the upper right hand corner of the site, you'll see a little ad: "Click here to shop Overstock.com. 5% of your purchase will go to support this effort." That link brings you to http://www.overstock.com/?TID=deepcapture where, presumably, any order you make will be tagged by the company to funnel 5% of the sale to the "effort."

What exactly is the money being used for? Former white-collar criminal and Overstock-critic Sam E. Antar received an email from former journalist Mark Mitchell: "I am writing a story about short-selllers (sic) and their relationships with independent researchers and the media. I would like to give you the opportunity to respond to various allegations regarding your work." He goes on to say that the article will be published on DeepCapture.com.

So here's the question I have: Why is Overstock.com's board of directors allowing Patrick Byrne to funnel money from the company's sales to a pet project aimed at pseudo-investigative pieces on short-sellers and their relationships with independent researches and the media?

If Patrick Byrne wants to use his own money to wage his self-proclaimed jihad, that's his business. But he should leave corporate assets out of it.