- Overstock has filed a motion to dismiss a lawsuit against it following its decision to give out a tokenized dividend last year
- Plaintiff claims former CEO Patrick Byrne artificially inflated the price and sold shares
- Overstock wants the case thrown out, arguing that the move was not to punish short sellers
Overstock has attempted to get a class action securities lawsuit against it thrown out, arguing that a digital dividend tied to its tZero platform was not a ploy to punish short sellers. The class action suit, brought last year, alleges that former CEO Patrick Byrne helped artificially inflate prices by offering a digital token as a dividend and then selling his own shares when the price artificially rose as a result.
Byrne Accused of Trying to Punish Short Sellers
A group of investors, headed by Benjamin Ha, sued Overstock and two former Overstock executives, former CFO Gregory Iverson and former CEO Patrick Byrne, in September 2019, claiming that Byrne’s strategy of paying an investor dividend in digital tokens tied to the company’s tZero blockchain project was a way to exact “revenge upon short sellers”.
The digitized security, which was to be accessible only through Dinosaur Financial brokerage, wasn’t tradable until six months after it had arrived, with the plaintiffs believing that the issuance of an unregistered security effectively resulted in the inability of short sellers to deliver the security upon the surrender of their shares.
Byrne Sold Shares at the Peak
This seemed to work, as the shares of the company jumped from $16 to almost $27.00 per share before deflating to $15.50 after Overstock relaxed the conditions around the sale of the tokenized dividend. Ha alleges that as a result, he and other shareholders paid “artificially inflated prices” for Overstock stock. Byrne sold $100 million worth of shares at this inflated price prior to leaving the company after it was revealed that he had engaged in a three-year affair with what turned out to be a Russian agent.
In their motion to dismiss, Overstock claims that Ha’s lawsuit does not actually show evidence of a “deceptive act” and that the defendants recognized in their complaint that the digital dividend would be an issue for short sellers. The fact that they stated such in their complaint is “fatal to pleading an underlying manipulative act and reliance”, they say.
As a result, Overstock has called on the Utah court to dismiss the lawsuit with prejudice, which means it cannot be brought again.
