Overstock.com, Short Sellers Continue Grudge Match
Late last year, Internet retailer Overstock.com, Inc., led by its controversial and often outspoken CEO Patrick Byrne, filed suit against hedge fund manager Rocker Partners and stock-research firm Gradient Analytics. Overstock alleged that Rocker Partners collaborated on disparaging reports with Gradient while Rocker was "shorting" Overstock's shares. In April, the lawsuit was put on hold as Gradient appeals a trial court's refusal to dismiss the case outright on grounds that the lawsuit violates its First Amendment rights.
The actions of Rocker Partners, and other short sellers have struck a nerve within the securities industry. On the one hand, hedge-fund managers like Rocker defend short selling as a legitimate way to trade on a company's perceived shortcomings that often leads to the discovery and public exposure of fraudulent practices. On the other hand, companies whose stock is shorted are frustrated when others are betting on and profiting from their failures.
Whether or not Overstock is ultimately successful in its lawsuit, the fight has once again focused regulators attention on short selling. In addition to investigations by the SEC, earlier this month, Utah passed specific legislation to address and reign in the actions of aggressive short sellers within their state.
