Re: 7/18/07 - [OSTK] Overstock lawsuit vs brokerages can proceed-judge; Overstock: Overstock.com Wins Ruling in Prime Brokerage Litigation; Universal Express Supports Overstock
UPDATE 3-Overstock lawsuit vs brokerages can proceed-judge
Wed Jul 18, 2007 3:22 PM ET
(Adds CEO comments, Merrill Lynch statement, additional details)
By Martha Graybow
NEW YORK, July 18 (Reuters) - Overstock.com Inc. <OSTK.O> can proceed with a $3.48 billion lawsuit against major U.S. brokerages that contends they schemed to drive down the price of its stock, a California state judge has ruled.
The online seller of excess inventory, whose shares jumped nearly 11 percent after the announcement, sued at least 10 major brokerages in February. It accused Citigroup Inc. <C.N>, Morgan Stanley <MS.N>, Bank of America Corp. <BAC.N> and others of deliberately manipulating Overstock's share price.
The case is part of an offensive by Overstock Chairman and Chief Executive Patrick Byrne against Wall Street companies, blaming them for a sharp slide in his company's share value.
Byrne said on Wednesday the ruling was issued orally on Tuesday by Judge John Munter of the California Superior Court in San Francisco. A clerk for Munter confirmed Wednesday that a ruling was issued from the bench by the judge allowing the lawsuit to proceed and said no written ruling was yet available.
Overstock has also sued an independent research firm and a hedge fund, accusing them of defamation for allegedly colluding to spread negative news about the company.
In a telephone interview, Byrne said Overstock will now prepare for a trial against the brokerages by beginning discovery, which includes requesting documents and deposing witnesses.
"We're going to crawl around in Wall Street's attic with flashlights and bolt cutters," he said. "I think there's a lot of dirty secrets from within Wall Street that are going to be revealed."
A spokesman for Merrill Lynch & Co. Inc. <MER.N>, another defendant in the case, said in a statement that the judge's decision "was merely a procedural ruling that says nothing about the merits of the case."
"The most powerful commentary on the meritlessness of this case comes from the two Overstock directors who have resigned in the last six months in connection with the case," said Merrill spokesman Mark Herr.
In May, Overstock announced the resignation of board member Ray Groves, while former board member John Fisher stepped down in February. The company has subsequently appointed new directors.
Citigroup said in a statement that the ruling "is procedural in nature and is not based on the merits of the claim. We continue to believe the suit is baseless and will defend ourselves vigorously."
Representatives from Morgan Stanley and two other defendants -- Goldman Sachs Group Inc. <GS.N> and UBS AG <UBSN.VX> <UBS.N> -- declined comment. Representatives of the other brokerages named in the suit could not be reached.
The lawsuit contends that the defendants, who it said control more than 80 percent of the prime brokerage market, participated in a scheme to manipulate Overstock's stock by executing short sales of Overstock stock "with no intention of delivering stock to settle the short sale."
This led to an oversupply of company stock for sale, putting downward pressure on the shares, the company contends.
"Defendants' actions caused and continue to cause dramatic distortions with regard to the nature and amount of trading in Overstock stock, which have caused Overstock's share price to drop," the company has said in court papers.
In a short sale, a person borrows stock and sells it, betting that the share price will go down so it can be bought back cheaper, yielding a profit from the difference.
Salt Lake City-based Overstock said the judge ruled that the company and its co-plaintiffs have stated viable claims for market manipulation under California securities law, as well as claims under the state's Unfair Business Practices Act.
Overstock shares were up 55 cents, or 3 percent, to $20.17 in afternoon trading on Nasdaq after trading as high as $21.72. That surpasses a prior 52-week high of $21 in September 2006, compared with a 52-week low of $13.40 in November. (Additional reporting by Jonathan Stempel/Joseph Giannone/Tim McLaughlin, editing by John Wallace/Tim Dobbyn/Toni Reinhold/Jeffrey Benkoe)
today.reuters.com
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Press Release Source: Overstock.com, Inc.
Overstock.com Wins Ruling in Prime Brokerage Litigation
Wednesday July 18, 10:53 am ET
Court Gives Overstock.com the Okay to Proceed and Denies Prime Brokerages Attempts to Derail Exposure
SALT LAKE CITY, July 18 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK - News; overstock.com) announced today a favorable ruling in the lawsuit pending in the Superior Court of California, County of San Francisco against most of the largest prime brokerage firms in the country, including 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.
On July 17, 2007, Judge John Munter of the California Superior Court for the City and County of San Francisco ruled that Overstock and it co-plaintiffs have stated viable claims for market manipulation under California securities law, for common law claims for conversion and trespass to chattels, as well as for injunctive relief under California's Unfair Business Practices Act against the defendant prime brokerage firms based on those defendants allegedly executing naked short sales of the stock of Overstock with the intent of manipulating the market price for the shares of those companies' stocks. In addition, the Court granted Overstock (and its co-plaintiffs) leave to amend other of their claims for restitution under the Unfair Business Practices Act and for the common law claim of interference with advantage, to more specifically plead the factual basis of these claims.
In so ruling, Judge Munter rejected defendants' claims that Overstock's complaint is preempted by federal law and that 'phantom' shares are not created by naked short selling of a company's stock as a matter of law.
"This is a huge win for us," said Jonathan Johnson, Overstock Senior Vice President of Legal. "We are eager to start discovery and move this case to trial. The day we expose in detail the defendants' misconduct to a jury will be a good day for Overstock, its shareholders and the capital markets."
"As I listened to defendants' counsel argue that phantom shares don't exist because the SEC says they don't exist," said Patrick Byrne, Overstock Chairman and Chief Executive Officer, "I was reminded of Abraham Lincoln's favorite joke: 'If you call a tail a leg, how many legs does a dog have?' 'Five?' 'No, four -- because calling a tail a leg doesn't make it a leg.' Defendants create phantom shares by facilitating naked short selling and other types of trades which result in failures-to-deliver. This is manipulative and illegal -- regardless of what the industry's all-too-cozy regulatory agency says. The battle to clean up Wall Street is only going to be won when it is brought to a jury of 12 Americans. Today was a giant step towards that goal."
The suit alleges that the defendants, who control over 80% of the prime brokerage market, participated in a massive, illegal stock market manipulation scheme and that the defendants had no intention of covering such orders with borrowed stock, as they are required to do, causing what are referred to as "fails to deliver." The suit also alleges that the defendants' actions caused and continue to cause dramatic distortions with regard to the nature and amount of trading in the company's stock which have caused the share price of the company's stock to dramatically drop. The suit asserts that a persistent large number of "fails to deliver" creates large downward pressure on the price of a company's stock and that the amount of "fails to deliver" has exceeded the company's entire supply of outstanding shares. The company is seeking damages of $3.48 billion.
About Overstock.com
Overstock.com, Inc. is an online "closeout" retailer offering discount, brand-name merchandise for sale over the Internet. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory liquidation distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ National Market System and can be found online at overstock.com.
Overstock.com® is a registered trademark of Overstock.com, Inc. All other trademarks are the property of their respective owners.
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, statements regarding statements regarding the case going to jury, defendants' exposure and the amount of damages that the company will seek, as well as all such other risks as identified in our Form 10-K for the year ended December 31, 2006, and all our subsequent filings with the Securities and Exchange Commission, which contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
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Source: Overstock.com, Inc.
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Press Release Source: Universal Express, Inc.
Universal Express Supports Overstock
Thursday July 19, 2:06 pm ET
NEW YORK, NY--(MARKET WIRE)--Jul 19, 2007 -- Universal Express Inc. (OTC BB:USXP.OB - News), www.usxp.com, the recipient of $700,000,000 naked short selling judgments and presently actively involved in an on-going naked shorting case with the SEC, today congratulated Overstock on its California victory in its litigation against prime brokers on naked short selling.
(http://biz.yahoo.com/prnews/070718/law077.html?.v=101)
"This victory simply puts additional corporate diversity and issue credibility in front of legislators, judges, shareholders and American citizens. Since the SEC has repeatedly stated that naked short selling doesn't exist, Universal Express initiated its lawsuit to be paid its $700,000,000 fraud judgments from the SEC's participation and failure to enforce the counterfeiting and securities laws of the United States. Unfortunately, the SEC's defense tactics normally involve ignoring the actual issues and to seek to eliminate the plaintiff by issuing defamatory press releases to distract taxpayer focus from the real issue at hand," said Richard A. Altomare, Chairman and CEO of Universal Express, Inc.
"Overstock's victory today has split the SEC's defense for those of us who have been advancing towards a jury trial and legal discovery in a New York courtroom.
"As a former Marine, I am not afraid of a conflicted governmental agency. That has been the reason that Universal Express has proudly and valiantly fought against obvious odds for over 10 years against the SEC and its broken trading system. Sophisticated analysts are beginning to see that companies like Overstock and Universal Express' actions will soon present to the American public a scandal which will shockingly dwarf previous governmental abuse of power scandals.
"Universal Express' jury trial has been requested and like Overstock our case is on behalf of our corporate reputations, corporate shareholder base and for all those thousands of small public companies, hundreds of thousands of investors and tens of thousands of employees injured by the naked shorting scandal, now commonly referred to as 'Stockgate'. America needs whistleblowers to shine a light on this economic SEC naked short selling debacle which has caused over 6,000 public companies to fail in the past six years.
"A governmental agency that attacks, intimidates and 'eats its young' needs to be investigated by a higher authority - our future trading system and economic base deserves that exposure. Both of our requested jury trials will present the real naked shorting issues, the real challenges and most importantly the real solutions," concluded Mr. Altomare.
About Universal Express
Universal Express, Inc. is a 23-year-old logistics and transportation conglomerate with multiple developing subsidiaries and services. For additional information please visit www.usxp.com
Safe Harbor Statement under the Private securities Litigation Reform Act of 1995: The statements contained herein, which are not historical, are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements including, but not limited to, certain delays beyond the Company's control with respect to market acceptance of new technologies, products and services, delays in testing and evaluation of products and services, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.
Contact:
For Investor Relations Call:
Mark Falk
Universal Express, Inc.
561-367-6177
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