New York – An article in CNN Money yesterday evening described the settlement of the lawsuit between the former Rocker Partners and Overstock.com? The case was settled with Rocker Partners (now Copper River Partners) paying Overstock.com $5 million. In turn, Copper River Partners agreed to drop its countersuit against Overstock.com and CEO Patrick Byrne. The link above is an excellent review of the settlement and the history of the case, so we will confine our comments to the broad issues. A letter from Patrick Byrne to shareholders, claims that “the good guys won”.
The Ongoing Need for Compliance
The issue of manipulating research to improperly create short trading opportunities is, of course, an extremely serious crime and every allegation of stock manipulation needs to be investigated. To avoid complaints, research providers have beefed up their policies and procedures, insured that a designated compliance person exists, and have instituted tracking reports and metrics, clarified stock ownership policies, etc. to ensure compliance. To be sure, there is an ongoing need to be vigilant in compliance and reporting to quell temptation of investors and research providers.
While Overstock.com’s CEO seeks to position himself as a champion of goodness and fairness, it seems that he may in fact be addicted to litigation. Overstock and Mr. Byrne have also filed suit against Morgan Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of America Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and UBS Financial Services, Inc, alleging that that these firms conspired to manipulate share values through engineering “failed delivery” short positions in order to drive down the value of shares. Further, Mr. Byrne accuses financial journalists, including Jim Cramer, Herb Greenberg, Joe Nocera and Dan Calaruso of talking down Overstock.com’s share value; vilified the SEC as being in the pocket of the Wall Street firms and; alleges that former New York Attorney General Eliot Sptizer was in the pocket of hedge funds. Wow.
The Take Away
Of course, the main lesson from this long suit should be that all efforts should be made to suppress improper trading practices and information flow in the financial community in order to protect shareholders.
Unfortunately, another take away from the Overstock saga may be that if you file multiple lawsuits, you have a greater chance of success (or at least settlement).