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Overstock.com Naked Short Selling Allegations Create Firestorm / FinancialWire®
August 18, 2005. (FinancialWire) (By Ant & Sons) Overstock.com’s (Nasdaq: OSTK) recent battle with alleged naked short selling has hit prime time, especially after Overstock.com founder and president Patrick Byrne’s interview on CNBC television.
August 18, 2005. (FinancialWire) (By Ant & Sons) Overstock.com’s (Nasdaq: OSTK) recent battle with alleged naked short selling has hit prime time, especially after Overstock.com founder and president Patrick Byrne’s interview on CNBC television.
On the Street Signs segment, Byrne echoed comments from a company press release where he said that “what's at stake here is innovation and entrepreneurship in America. My company has been attacked and I'm not going to take this lying down. In joining forces with John O'Quinn and his team of lawyers, I think we have what it takes to win. We certainly have what it takes to fight." These are certainly encouraging words, especially to company’s like Communications (OTC: EATC), JAG Media (OTC: JAGH) and Eagle Broadband (AMEX: EAG) that have been investigating naked short selling in their stock.
Last week, Overstock.com filed suit against Rocker Partners and Gradient Analytics, alleging that the hedge fund and research company conspired to drive down the company's stock in scheme known as naked short selling. Generally speaking, naked short selling is defined as selling a security short without borrowing the necessary securities to make a delivery, thus resulting in a failure to deliver the securities to the rightful owner. The main goal of naked shorting is to engage in harmfully affecting the stock price of a company in order to manipulate and create downward pressure on the security, affecting a company’s ability to raise money on the open market.
Taking charge on the legal front for Overstock.com is reputable Attorney John O'Quinn, who is also lead legal counsel for another naked short selling embattled company called Eagletech Communications (OTC: EATC). Commenting on his relationship with the company, O’Quinn stated that “combining our lawyers and a-level experts with the tenacity, verve and commitment of Overstock.com CEO Dr. Patrick Byrne is a powerful alliance, hitched up for the long haul to win this battle. It is time someone stops these offshore hedge funds from taking advantage of average working Americans and American Public companies.”
On that note, it is no surprise that with Overstock.com’s ability to garner some attention for the issue of naked short selling, many companies are taking advantage of the spotlight to highlight how their companies have been abused and manipulated.
Following this tidal wave of publicity, Dave Micek, President and CEO of Eagle Broadband (AMEX: EAG), expressed concern over the “decline in the price of Eagle's stock in recent months.” Due to some information that the company received that suggests the company's stock has been subjected to improper trading activities, he confidently went on to say that the company believes “illegal stock manipulation schemes may have contributed to the decline.” As evidence of possible illegal activity, is Eagle Broadband’s inclusion on the AMEX Regulation SHO list includes. This list highlights companies whose stocks have experienced failed settlements (i.e., failure to deliver stock that has been sold short within the required three day settlement period) for five consecutive days with aggregate fails to deliver of more than 10,000 shares and the level of fails equaling at least 0.5% of the company's shares outstanding.
Eagle Broadband, a leading provider of broadband, Internet protocol and communications services, is one of the more organized companies that has developed a strategy to combat naked short selling. The company has established a team that includes management, in-house counsel and outside securities law experts, to address the illegal stock trading and market manipulation schemes involving the company's stock. Most importantly, their team will try and work with regulatory authorities who will be able to take enforcement action.
Besides relying on regulatory agencies, which have been wary to take action on naked short selling claims, the company is also requesting that brokers and investors convert margin accounts to cash accounts to limit the amount of shares available to borrow for short sales. One major action that has not been taken, however, is to request all stockholders who owned the company’s stock through a broker to send the company a copy of their brokerage account statement reflecting their position in Eagle Broadband common stock. If the company’s short position is that drastic, like it is rumored to be in JAG Media (OTC: JAGH), a company that has proceeded to prove just that, the evidence would be overwhelming if brokerage statements proved a naked short in the company’s stock.
The bottom line though is that taking a more active approach will be the only way companies can start to expose how large of a problem naked short selling has become. With increasing evidence that this is not just a mere market conspiracy, the pressure will only increase for regulatory bodies to do something about naked short selling.
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