Judge Junks Overstock Lawsuit Against Goldman, Merrill

Jan 12 2012 | 12:32pm ET

A California judge has dismissed a lawsuit against two banks over allegations that they conspired to drive down the share price of Overstock.com Inc. in cahoots with hedge funds.

Overstock said that Goldman Sachs and Merrill Lynch, which is now part of Bank of America, never delivered shares to hedge funds and other clients shorting Overstock shares. In fact, the online retailer says that the banks actually lent more shares than were outstanding to hedge funds hungry to bet against the company—but reaped the securities lending fees anyway.

But Judge John Munter in San Francisco junked the suit because Overstock failed to show that any of the allegedly improper conduct took place in California.

"Plaintiffs have failed to raise a triable issue of material fact supportive of a finding that any act by any defendant foundational to liability, causation or damages occurred in California," Munter ruled.

Lawyers for Goldman and Merrill had also argued that the alleged actions hadn't actually hurt Overstock shares.

"There's no evidence in the record that the defendants' fails-to-deliver, regardless of what short sales we might have caused as a result of that, caused Overstock to be in the top 1% of all shorted companies," Merrill lawyer Andrew Frackman said at a hearing last week. "Their prime broker, their settling departments that were engaged in this are located in New York and New Jersey."

Overstock said it would appeal the dismissal—and bring new lawsuits.

"Because the defendants have admitted their conduct took place outside of California, we intend to file suit in another state," Jonathan Johnson, Overstock president, said.

The legal spat with Goldman and Merrill isn't the first time Overstock has headed to court over the short-selling allegations. In 2005, it sued Copper River Partners—formerly Rocker Partners—and a research firm, accusing them of conspiring to drive down its share price.


In Depth

Q&A: Open Season For Closed-End Funds

Aug 29 2014 | 10:00am ET

When Maury Fertig and Bob Huffman, former Salomon Brothers coworkers, launched...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.