08 November 2017
Reporter: Drew Nicol

Overstock CEO fails to scare off the bears

Online retailer and blockchain incubator Overstock has seen its share price rise by 81 percent to close last week at $44.55, but short sellers are jostling to position themselves for a downturn.

FIS Astec Analytics put Overstock as the top pick for its hot stocks list for the Americas for the week starting 30 October.

According to FIS data, short interest has gathered pace since the start of September, increasing more than five-fold to a peak of 97 percent of the available shares, before ending the week at just over 92 percent.

Part of Overstock’s recent share price increase has been attributed to that fact that tZero, an Overstock subsidiary, will be conducting an initial coin offering, with the final details expected this week.

The revelation came as part of a conference presentation last month by Overstock CEO Patrick Byrne, who used the platform to argue that the settlement crisis of September 2008 was caused by “mischief on the securities lending desk”.

Over-allocation of locates by agent lenders, resulting in borrowers engaging in naked short selling, was at the heart of what went wrong in 2008, said Byrne, speaking at the Money20/20 financial technology conference in Las Vegas.

Byrne stated: “2008 was a settlement crisis. The thing that actually caused the government to act was when the settlement system froze on the morning of Wednesday 15 September.”

He explained: “It did that because of the mischief on the securities lending desk that underlies short selling.”

Outspoken CEO has been a vocal critic of short sellers of his company in the past, and only recently settled a long-running legal battle against with a group of broker-dealers, after securing a $20 million settlement from Merrill Lynch.

Merrill Lynch Professional Clearing Corporation was the last defendant standing in the litigation over allegations of naked short selling, which were first brought in 2007 and concluded in 2016.

Byrne and a group of shareholders initially brought the litigation against 11 broker-dealers in California, claiming they engaged in naked short selling that drove down the retailer’s share price and hindered capital raising efforts.

The retailer settled out of court with all of the defendants, except Goldman Sachs and Merrill Lynch.

The case against Goldman Sachs was eventually dismissed due to a lack of jurisdiction, but Overstock filed a fresh case in New Jersey, making racketeer-influenced and corrupt organisation (RICO) allegations and accusing the bank of securities fraud.

Goldman Sachs agreed to settle the new action out of court, admitting no liability.

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