Re: 8/11/05 - [OSTK] Complaint: Overstock vs. Gradient Analytics, Rocker Parners, et. al.
[Note: This document was OCR'd from the original PDF file (see link below)]
Filed Aug 11 2005
William. J. Sexton (State Bar No. 164929)
Tae-Yoon Kim (State Bar No 209934)
SIEGLER LAW GROUP
9454 Wilshire Boulevard, Suite M—16
Beverly Hills, California 90212
Telephone: (310) 777-1111
Telecopy: (310) 777-1114
Attorneys for Plaintiffs
OVERSTOCK.COM, INC., a Delaware corporation
and MARY HELBURN, an individual
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF MARIN
OVERSTOCK.COM, INC., a Delaware corporation;
MARY HELBURN, an individual,
Plaintiffs,
vs.
GRADIENT ANALYTICS, INC., an Arizona corporation;
ROCKER PARTNERS, LP, a New York limited partnership;
ROCKER MANAGEMENT, LLC, a New Jersey limited liability company;
ROCKER OFFSHORE MANAGEMENT COMPANY, INC., a New York corporation;
DAVID ROCKER, an individual;
MARC COHODES, an individual;
JAMES CARR BETTIS, an individual;
DONN VICKREY, an individual;
MATTHEW KLIBER, an individual;
and DOES 1 through 100,
Defendants.
CASE NO. CV 053693
COMPLAINT FOR:
1) UNFAIR COMPETITION
2) NEGLIGENCE
Plaintiffs Overstock.com, Inc. and Mary Helburn, for their Complaint, allege as follows:
NATURE OF THE CASE
This is an action for unfair business practices where the Defendants have conspired to denigrate the business of online retailer Overstock.com so as to reap personal profits for themselves. The plaintiffs are Overstock.com, Inc. and Mary Helburn (collectively “Plaintiffs”). The defendants are Gradient Analytics, Inc., Rocker Partners, LP, Rocker Management, LLC, Rocker Offshore Management Company, Inc., David Rocker, Marc Cohodes, James Carr Bettis, Donn Vickrey, and Matthew Kliber. As set forth below, the complaint alleges claims for (i) unfair competition in violation of Business & Professions Code §§ 17200 et seq, 17500 et seq, and (ii) negligence under California common law.
PARTIES
1. Overstock.com, Inc. (“Overstock”) is a Delaware corporation with its principal place of business in Salt Lake City, Utah.
2. Mary Helburn (“Helburn”) is a citizen of California, residing in Santa Clara County, California.
3. Upon information and belief, Gradient Analytics, Inc. (“Gradient”) is an Arizona corporation with its principal place of business in Scottsdale, Arizona; was formerly known as Camelback Research Alliance, Inc., and adopted its present name in November 20Q4; is owned and controlled by Defendants James Carr Bettis and Donn Vickrey, and disseminates its research reports to hedge funds, mutual funds and financial commentators on a subscription basis throughout the State of California.
4. Upon information and belief, Rocker Partners, LP (“Rocker Partners”) is a New York limited partnership with its principal place of business in New York, New York, which is authorized to conduct and transact business in California, and which maintains an address in Larkspur, California, within Mann County. Upon information and belief, Rocker Partners is owned and controlled by its general partners, Defendants David Rocker and Marc Cohodes.
5. Upon information and belief, Rocker Offshore Management Company, Inc. (“Rocker Offshore”) is a New York corporation which has its principal place of business in Millburn, New Jersey, and which is authorized to conduct and transact business in California. Upon information and belief, Rocker Offshore is owned, operated and controlled by Defendant David Rocker.
6. Upon information and belief, Rocker Management, LLC (“Rocker Management”) is a New Jersey limited liability company which has its principal place of business in Millburn, New Jersey, which is authorized to conduct and transact business in California, and which maintains an address in Larkspur, California, within Mann County. Upon information and belief, Rocker Management is owned, operated and controlled by Defendants David Rocker and Marc Cohodes.
7. Upon information and belief, David Rocker (“Rocker”) is a citizen of New Jersey residing in Short Hills, New Jersey, and is an officer, sole managing partner, member, and/or controlling owner of companies including the Rocker Defendants, defined hereafter.
8. Upon information and belief, Marc Cohodes (“Cohodes”) is a citizen of California residing in Mann County, California, and is an officer, member, and/or controlling owner of companies including the Rocker Defendants.
9. Upon information and belief, Carr Bettis (“Bettis”) is a citizen of Arizona residing is Scottsdale, Arizona.
10. Upon information and belief, Donn Vickrey (“Vickrey”) is a citizen of Arizona residing in both Arizona and California.
11. Upon information and belief, Matthew Kliber (“Kliber”) is a citizen of Arizona residing in both Arizona and California.
12. The names and capacities of the Defendants named as Does 1 through 100, inclusive, are presently unknown to the Plaintiffs. Plaintiffs are informed and believe that Does 1 through 100 inclusive are the affiliates, partners, co-venturers, co-conspirators and/or aiders and abettors of the other Defendants, and each other, and Defendants agreed, conspired and participated with the other Defendants in doing the things alleged herein, and ratified and accepted the benefits of the acts of the other Defendants, such that they are in some manner responsible for the acts and omissions complained of herein. Accordingly, these Defendants, each of whom is legally responsible for the acts alleged herein, are sued by these fictitious names. When the identities and capacities of Does 1 through 100, inclusive, are ascertained, Plaintiffs will seek leave of Court to amend the Complaint accordingly.
13. Defendants Rocker Partners, Rocker Offshore, Rocker Management are sometimes collectively referred to herein as “the Rocker Defendants.” Upon information and belief, the Rocker Defendants are owned, operated and controlled by each other and ultimately by Rocker and/or Cohodes, and because of such ownership, operation and control, the Rocker Defendants, Rocker and Cohodes have such a unity of interest that the separate personalities of the entities and the individuals no longer exist, and if the acts are treated as those of the entities alone, an inequitable result will follow.
14. Defendants Gradient, the Rocker Defendants, Rocker, Cohodes, Bettis, Vickrey, Kliber and Does 1 through 100 are sometimes collectively referred to herein as “Defendants.” Each of the Defendants is jointly and severally liable for the acts and omissions complained of herein.
FACTUAL BACKGROUND
15. Overstock is an online “closeout” retailer headquartered in Salt Lake City, Utah. Overstock launched its first website through which customers could purchase products in 1999. Since that time, Overstock’s overall business, and gross revenues have grown steadily and consistently, at the rate of approximately 100% each year since 2000. Overstock’s annual revenues for the year ending December 31, 2004, were approximately $500 million.
16. On May 30, 2002, Overstock conducted an initial public offering of its stock, offering 3.101 million shares of common stock at. a price of $13.00 per share. On February 12, 2003, the company sold 1.725 million shares of common stock in another public offering, this time at a price of $15.00 per share. Thereafter, in May 2004, Overstock sold another 1.3 million shares of common stock in a public offering at a price of $30.50 per share. Finally, on November 11, 2004, the company issued (i) 1.38 million shares of common stock at a price of $57.53 per share, and (ii) 3.75 % Convertible Senior Notes due in 2011 for $120,000,000. Overstock’s common stock trades on the NASDAQ National Securities Market under the symbol “OSTK.”
17. Helburn formerly was the owner of 500 shares of Overstock common stock purchased on January 28, 2005 at $57.08/share, and on August 5, 2005, Helburn sold such shares at $41.83/share, for a gross loss of $15.25/share.
18. According to its website, Gradient is “an independent research firm providing both analyst-written research work. . . and quantitative stock ratings for institutional clients. . . gradientanalvtics.cornlaboutus.php (emphasis added). In these regards, Gradient produces and publishes, inter alia, so-called Earnings Quality Analytics (“EQA”) reports, which provide analysis of various publicly traded companies. Gradient is an influential company, and sells reports and analyses on publicly traded companies to hedge funds, traditional mutual funds, and provides them to financial commentators such as MSNBC. The wide exposure of its products gives Gradient a large audience.
19. Upon information and belief, Vickrey was a co-founder of Gradient and the primary creator of EQAs and other reports, and currently oversees and manages all of Gradient’s purported “analyst-driven content.” Kliber, in turn, is Gradient’s Vice President of Research and “leads the development of Gradient’s analyst-driven research products.” Bettis, also a co-founder of Gradient, is the company’s President and Chief Executive Officer, and “guides the strategic direction and oversees the business operations.. .[of the company).”
20. Contrary to its purported “independent” status, Gradient is closely aligned with various stock hedge funds. One of those hedge funds is Rocker Partners, which on information and belief is owned and/or controlled by Rocker and Cohodes, individually and/or through Rocker Offshore or Rocker Management. The Rocker Defendants’ business model largely revolves around short selling as an investment strategy. Generally speaking, in a short sale, a person sells stock that he or she does not then own by borrowing the stock and warranting that the loan will be “covered” with shares purchased at a later date. The seller speculates that the price of the stock will go down so that, when (if ever) the loan is “covered,” he or she will profit from the drop in price. In this regard, therefore, the Rocker Defendants bet that the stock price of a company whose stock it has shorted will (i) decrease from the price at which it sold the stock, and (ii) not recover to that price, thereby locking in a profit if covered. Thus, the Rocker Defendants have a vested interest in seeing the share prices of its short holdings decrease. Upon information and belief, the Rocker Defendants have, and maintain, significant short positions in Overstock’s common stock. Indeed, short interest in Overstock in general has skyrocketed in the last two years. It is, therefore, in the Rocker Defendants’ interest for the price of Overstock’s common stock to be depressed.
21. Beginning around June 2003 and over the following two years, Gradient issued a continual slew of approximately 58 EQAs and various other reports on Overstock, uniformly giving the company the lowest possible grades (or nearly so). Generally Gradient’s reports were tailored to include information supplied by the Rocker Defendants. Instead of being objective and independent reports, however, these EQAs and other reports reflected significant negative input from at least the Rocker Defendants, Rocker, and Cohodes. Indeed, upon information and belief, Vickrey routinely edited draft EQAs and other reports on Overstock — which he shared with the Rocker Defendants prior to publication — to reflect specific negative input from Rocker and/or Cohodes. On information and belief, Vickrey routinely held the EQAs and other reports at the specific request of Rocker and/or Cohodes before disseminating the EQAs and other reports to enable the Rocker Defendants time to position their portfolio to benefit from the publication. Gradient’s EQAs and other reports did not disclose either that the Rocker Defendants had input into their drafting, or that the EQAs and other reports were not independent and objective analyses of their target. Nor did Gradient disclose that they
were, at least in large part, simply platforms for the Rocker Defendants to pursue its investment agenda of having Overstock’s share price kept as low as possible.
22. As noted above, Overstock went public in May 2002. From that time until early 2003, the short interest in Overstock’s common stock was slight. Several months before Gradient began issuing EQAs and other reports on Overstock, however, short sales of Overstock began to increase markedly. Thereafter, short sales of the company’s stock have virtually exploded, mushrooming to almost 7 million shares by June 2005. In the meanwhile, the price of Overstock’s common stock fought against (i) the effects of Gradient’s negative EQAs and other reports, and (ii) the downward pressure of massive short selling, to close at an all time high of $77.18 in January 2005. However, despite Overstock’s consistently growing revenues and its stock price’s well-justified performance in the market, in the last few months as a result of the Gradient’s tainted and malicious EQAs and other reports, Overstock’s reputation and stock price have been greatly harmed. Now Overstock’s stock trades well below its high of $77.17.
23. Gradient publicly holds itself out as providing independent, objective, and unbiased reports on publicly traded companies. It further boasts the expertise of Bettis and Vickrey as renowned academicians and theoreticians in the field of quantitative analysis. In reality, however, Gradient’s EQAs and other reports are driven not by objective analysis, but by the undisclosed biases and subjective agendas of hedge funds (and others) with vested interests in the performance of the targeted companies. In other words, Gradient knowingly serves as a shill for, in Overstock’s case, at least the Rocker Defendants, Rocker, and Cohodes. The EQAs and other reports are controlled by Kliber and Vickrey who, with Bettis’ blessing, allow Defendants and other biased hedge funds and other third parties to dictate their content without disclosing that input and bias. The EQAs and various other reports have had their intended effect, depressing and driving down the price of Overstock’s common stock, but that effect was artificially and surreptitiously created.
FIRST CAUSE OF ACTION
(Violation of Business and Professions Code §§ 17200 et seq and §§ 17500 et seq and Conspiracy or Aiding and Abetting - Against All Defendants)
24. Paragraphs 1 through 23, inclusive, of this Complaint are incorporated by reference as if set forth in full herein.
25. The knowing and intentional dissemination of negative EQAs and other reports on Overstock without disclosing the input of the Rocker Defendants, Rocker, and Cohodes therein, constitutes an unlawful, unfair, or fraudulent business act or practice by the Defendants, and each of them, in violation of Business and Professions Code §§ 17200 et seq and §§ 17500 et seq.
26. Overstock and Helburn have been injured by the Defendants’ violations of §§ 17200 et seq and §§ 17500 et seq.
27. Plaintiffs are informed and believe that the Defendants agreed and conspired to engage in acts of unfair competition, or aided and abetted the acts of each other, and encouraged, ratified, and/or accepted the benefits of the acts of each other.
28. Overstock is entitled to injunctive relief restraining the Defendants from committing further unfair trade practices, and restitution of (i) all amounts lost in the sales of common stock to the public at-prices lower than what they would have been had the Defendants not engaged in the challenged conduct, (ii) all amounts lost in the decline of Overstock’s market capitalization resulting from the challenged conduct; (iii) attorneys’ fees; and (iv) prejudgment interest.
29. Likewise, Helburn is entitled to restitution from the Defendants of all sums lost by her as a result of the decline in Overstock’s share price, as well as attorneys’ fees and prejudgment interest.
SECOND CAUSE OF ACTION
(Negligence - Against All Defendants)
30. Paragraphs 1 through 29, inclusive, of this Complaint are incorporated by reference as if set forth in full herein.
31. Under the circumstances, the Defendants, and each of them, owed a duty of care to Overstock and Helburn. The Defendants breached their duties of care by, inter alia, preparing and publishing the EQAs and other reports on Overstock without disclosing the fact and nature of the negative input given by the Rocker Defendants, Rocker, and Cohodes. As a proximate result of the Defendants’ negligence, Overstock and Helburn (i) have been damaged in amounts to be determined, and (ii) are entitled to recovery for those damages from the Defendants.
PRAYER
WHEREFORE, Plaintiffs seek judgment as follows:
On the First Cause of Action:
1. For restoration of money and property acquired by unfair competition.
2. Injunctive relief.
3. Restitution for benefits unfairly obtained by Defendants.
4. For attorneys’ fees according to statute.
5. For prejudgment interest.
On the Second Cause of Action:
1. For damages in an amount according to proof at trial, in an amount in excess of the jurisdictional minimum of Superior Court.
On All Causes of Action:
1. For costs;
2. For reasonable attorneys’ fees; and,
3. For such and further relief as the Court may deem appropriate.
Dated:
Respectfully submitted,
Siegler Law Group
by William Sexton
Attorneys for Plaintiffs
OVERSTOCK.COM, INC., a Delaware corporation
and MARY HELBURN, an individual
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