Overstock.com’s stock slides amid investor's lawsuit against company, ex-CEO

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SALT LAKE CITY — Overstock.com's stock value modestly rose Wednesday but has been in a skid over the past couple of weeks. By midday, it was valued at $10.18 per share — about 6% higher than it was by the time the closing bell rang on Wall Street Tuesday.

The Midvale-based online retailer's drop comes amid a class-action lawsuit filed by a shareholder who accused it and two former executives of fraud by using misleading tactics that “artificially” enhanced the company’s market value.

The federal complaint, filed in U.S. District Court on Friday by California investor Benjamin Ha on behalf of company shareholders, claims the company, as well as former CEO Patrick Byrne and former CFO Gregory Iverson withheld facts about the company’s business and concealed “the true operational and financial condition” of the company during the five-month span that:

Let the company “deceive” investors regarding its business, operations management, and its value
Helped the company “artificially inflate the price” of its stock
Allowed Byrne to sell more than $102 million in personal shares of the company during two sell-off periods in May and September
Allowed the company to sell additional shares to “create a cash fund necessary” to support its crypto projects

At the same time, Ha argues investors purchased stock at an artificial price, were left in the dark about dealings within the company, and several of the tactics violated U.S. securities laws.

In response to the lawsuit, an Overstock.com spokesman told KSL.com: “The company disagrees with the plaintiff’s allegations. We will vigorously defend the lawsuit and we expect to win.”

Meanwhile, Byrne appeared to respond to the lawsuit in a post on his personal blog Tuesday. In it, he acknowledged reporters were trying to reach him and hinted he was away from the U.S.

“I really do intend to lay low, not reveal any more than I have, and wait for ‘the wheels of the Gods to grind slow but grind small’ (and preferably, not ‘slow’ for much longer),” he wrote.

As for the lawsuit itself, Ha’s complaint centers around financial moves made during the span between May 9 and Sept. 23 and mostly cites Overstock filings with the SEC, company press releases, other information given to shareholders, various news articles, and even Byrne’s blog. It states shareholders were told the company could expect a return of at least $17.5 million in earnings by the end of 2019. In addition, he said shareholders were promised a cryptocurrency dividend on Sept. 23.

However, the Overstock story turned bizarre in late summer. On Aug. 12, and seemingly out of the blue, Byrne issued a statement admitting to having aided in the U.S’s Russian probe. Overstock’s share prices plummeted in the days after the statement. Byrne later stepped down from the company on Aug. 22.

The lawsuit continues to say shareholders were never told dividend may have been used as a ploy to thwart those trying to short sell the company’s stock. Instead, Ha wrote investors learned that through Bloomberg and New York Post news articles published on Sept. 16 and Sept. 17 that cited market analysts describing how the dividend would hurt short sellers. Then, on Sept. 18, Overstock issued a news release stating it had to delay handing out the digital dividend.

That same day, Byrne published a pair of blog posts saying that he had sold all his remaining Overstock shares before heading on vacation overseas. The sale of those stocks was reportedly more than $91 million, according to the lawsuit.

In the posts, Byrne wrote that he believed the U.S. Securities and Exchange Commission was out to get him and Overstock and were planning to “bazoomba” the dividend. In fact, he claimed that SEC employees leaked to investment firms that the agency would crack down on the digital dividends.

“Whenever I have had any question about whether the SEC would or would not do something totally outrageous in order to hurt our company to benefit their clients on Wall Street, they never let me down: They always did the evil thing,” Byrne wrote.

Meanwhile, Overstock’s share value began to soar in early September. It’s value rose from $15.07 per share on Sept. 3 to $26.72 on Sept. 12, according to Nasdaq listings. But the company’s latest stock tumble came around the time the news articles ran. Ha said Overstock traded at a low of $15.50 on Sept. 18 — the day Byrne wrote he had sold his stocks — and dropped to $11.19 per share at the end of Sept. 23. To put in comparison, Overstock shares sold for $13.50 apiece when the company went public in 2002.

This graph shows the value of Overstock.com stock over the past six months. (Graph: Nasdaq)

Ha also claimed in the lawsuit that shareholders didn’t even learn until a company press release on Sept. 23 that Iverson had left the company on Sept. 17.

The lawsuit states the plaintiffs are seeking a jury trial and unspecified compensatory damages against all three defendants either jointly or severally, as well as legal/expert fees.