Feeds

Overstock.com sues Wall Street for $3.48bn

'Massive illegal stock market manipulation'

Beginner's guide to SSL certificates

One gets the feeling that Patrick Byrne, the boss of the online excess inventory dealer Overstock.com, would have an argument with himself if he were the only person in the room.

But let's say this for the pugnacious retailer, he's willing to take on all shapes and all sizes. On Friday, Overstock went after most of Wall Street, with a $3.48bn lawsuit filed against 12 brokerage firms, alleging a "massive, illegal stock market manipulation scheme".

Overstock claims the banks caused its share price to go into freefall, through naked short selling. Short selling is when traders sell shares to drive prices down with the intention of buying back later at a lower price. The naked version is when the stock is sold by a trader without determining first if the stock actually exists and without borrowing stock to honor the deal. Wall Street calls this "fails to deliver', because the seller cannot deliver. Got that? No? Here is a more detailed explanation (albeit from opponents from the practice).

Suffice to say, naked short selling is often - although not always - illegal under SEC rules. And Overstock.com complains that its name has appeared consistently on the lists of "fails to deliver' stock within the national clearance and settlement system, whch have been published daily since January 2005. These "manipulative activities have caused tremendous damage to Overstock," said Byrne. "I believe that this conduct is harming our company and our shareholders deeply, and that investors have been failed by those who have a duty to protect them."

The investment banks may be harming Overstock.com's share price, but recent business is not helping, either.

The company had a horrible December quarter, today reporting a net loss in Q4 of $40.7m, against last year's loss of $6.3m. At -$1.92 a share, the losses were more than double consensus analyst estimates of -84c a share. Q4 sales were down six per cent on last year to $297.5m. Sales for the full year eased one per cent to to $796.4m and full year losses were $97m (2005: $25.1m).

In a letter to shareholders today, Byrne said the company had "paid the price for hastily implemented system upgrades of 2005 and the subsequent troubles caused by them". Also the company had a very painful big inventory clear-out during the quarter. But on the upside, the system upgrades "hummed through this Q4, like well oiled machines". So that's one less headache.

The company has also trimmed staff and building costs to reflect the reality that the days of "hypergrowth" are behind it and it is not going to be a $2bn t/o company in a hurry. Also it says it has reduced inventory and is selling higher-priced, higher-margin goods these days.

And just for fun, the company has another little lawsuit to contend with - a patent spat over sweepstakes software on its site. ®

The next step in data security

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
JINGS! Microsoft Bing called Scots indyref RIGHT!
Redmond sporran metrics get one in the ten ring
Driving with an Apple Watch could land you with a £100 FINE
Bad news for tech-addicted fanbois behind the wheel
Murdoch to Europe: Inflict MORE PAIN on Google, please
'Platform for piracy' must be punished, or it'll kill us in FIVE YEARS
Bono: Apple will sort out monetising music where the labels failed
Remastered so hard it would be difficult or impossible to master it again
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Sony says year's losses will be FOUR TIMES DEEPER than thought
Losses of more than $2 BILLION loom over troubled Japanese corp
Radio hams can encrypt, in emergencies, says Ofcom
Consultation promises new spectrum and hints at relaxed licence conditions
prev story

Whitepapers

Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.