Overstock Files to Dismiss 'Meritless' Fraud Lawsuit Over Its Digital Dividend

The e-commerce firm is hoping to persuade a judge in the Utah District Court to throw out a class-action securities fraud lawsuit relating to the firm's security token dividend and its effect on short sellers.

May 14, 2020 at 9:10 a.m. UTC
Updated Sep 14, 2021 at 8:41 a.m. UTC

U.S.-based e-commerce firm Overstock is hoping to persuade a judge in the Utah District Court to throw out a class-action securities fraud lawsuit relating to the firm's digital dividend and its effect on short sellers.

In a filing on May 12 (see in full below), Overstock took aim at the two main allegations made in the suit: that the firm had made false declarations in 2019 about its financial future, and that it had deliberately launched the digital dividend (a tokenized security planned for listing on its affiliate company tZero’s trading platform) in order to create an artificial squeeze on short sellers.

On the first point, the motion to dismiss points to the fact that Overstock's financial projections are "quintessential forward-looking statements protected by the [Private Securities Litigation Reform Act]’s safe harbor." Further, the plaintiffs – led by the Mangrove Partners Master Fund, Ltd. – did not provide any "facts" that that the statements had been false at the time they were published, it argues.

"In fact, the Complaint does not contain a single contemporaneous allegation – any person, meeting, or internal document – suggesting that any Defendant knew of, or had access to, information inconsistent with any challenged statement," the filing reads.

On the second point, while Patrick Byrne – Overstock's CEO at the time and a defendant in the suit – had long argued that naked short sellers were an evil to be abolished – Overstock claims that the lawsuit does not actually provide allegations of a "deceptive act." More specifically, it says that defendants made no claim that Overstock had deliberately placed "inaccurate" information into the market regarding its digital dividend.

That the dividend would be problematic for short sellers had been "recognized and publicized" by market observers on the day it was announced, says Overstock. And the fact that the defendants recognized this in their complaint "is fatal to pleading an underlying manipulative act and reliance."

As such Overstock calls upon the Utah court to dismiss the lawsuit with prejudice, as "the broad media coverage belies Plaintiff’s contention that Defendants’ conduct or statements deceived anyone."

The lawsuit was originally filed Sept. 27, 2019, with the lead plaintiff at the time being investor Benjamin Ha. It claimed Overstock had made false claims to artificially inflate the value of Overstock stock and allowed Byrne to sell all of his shares – worth over $100 million at the time – at unrealistic prices when he left the firm.

Byrne departed last August after disclosing he’d been in a three-year affair with a Russian agent and claiming that he'd acted as a confidential informant for law enforcement agencies.

See the full motion to dismiss filing below:

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
CoinDesk - Unknown
Cardano’s Hoskinson: Luna Collapse Shows Need to Go Slow in Crypto

“If you move too quickly … everybody loses their money,” says Hoskinson, who will speak at Consensus 2022 next month.

“If you move too quickly … everybody loses their money,” says Hoskinson, who will speak at Consensus 2022 next month.

CoinDesk - Unknown
2
CoinDesk - Unknown
One River’s Carbon Neutral Bitcoin ETF Rejected by SEC

It's the latest in the agency's string of rejections of spot Bitcoin ETF applications.

It's the latest in the agency's string of rejections of spot Bitcoin ETF applications.

CoinDesk - Unknown
3
CoinDesk - Unknown
A Second Chance: New Terra Blockchain to Launch Saturday, UST Now Live on Polygon

The most valuable crypto stories for Friday, May 27, 2022.

The most valuable crypto stories for Friday, May 27, 2022.

CoinDesk - Unknown
4
CoinDesk - Unknown
Bitcoin Faces Resistance at $33K; Support at $22K-$25K

Volatility could rise, especially if another price breakdown occurs.

Volatility could rise, especially if another price breakdown occurs.

CoinDesk - Unknown