A two count federal securities fraud lawsuit against Overstock.com, Gregory Iverson and Patrick Byrne was filed Friday in Utah federal court. This follows Iverson’s resignation as Overstock CFO on September 17 and Byrne’s resignation as CEO on August 22.
The lawsuit alleges that after a long streak of losing money, Overstock “embarked on a blockchain strategy … designed to profit on new markets for cryptocurrency. In fact, it was recently reported that, for the last several years, defendant Byrne spent no fewer than 220 days a year on the road, “spreading his blockchain gospel, despite the fact that Overstock was hemorrhaging cash.”
According to the putative class action complaint, the defendants claimed in SEC filings and investor/analyst conference calls that Overstock’s transition to being a cryptocurrency exchange provider would be a great benefit to investors. However, plaintiff says that this was a risky strategy that was actually “revenge upon short sellers and tried to create a short squeeze by offering a digital token dividend that would not be registered and could not be resold for at least 6 months.
The lock-up period created by the issuance of an unregistered security effectively resulted in the inability of short sellers to deliver the security upon the surrender of their shares.”