The US Securities and Exchange Commission (SEC) has charged Overstock, and two of its former executives, with securities fraud. Overstock is an e-commerce giant that made a crossover into the cryptocurrency and blockchain industry and is now facing SEC charges over its conduct during this crossover.
The SEC alleges that Overstock.com and two former executives, Gregory Iverson who served as CFO before his resignation on the 17th of September and Patrick Bryne who stepped down from his position as CEO on the 22nd of August, misled investors during the launch of the company’s token trading platform and digital security token. Overstock launched a trading platform named tZero, and the lawsuit says that during this launch, investors were promised massive benefits. It goes on to say that before Bryne stepped down from his role as CEO, he made plans for Overstock’s next dividend to be paid out in digital security.
Bryne deliberately inflated stock prices and reaped maximum profits
Overstock’s security was only available through a single brokerage called Dinosaur Financial. The dividend was only payable from the 15th of November, and a holder wouldn’t be able to trade it until six months after that. According to the SEC, Overstock placed these measures in a bid to create a short squeeze. The company created a lock-up period for the digital dividend which constituted unregistered security, and this means that short sellers were unable to deliver on the surrender of their shares.
A short squeeze creates artificial demand and leads to the inflation of a stock’s price. This was proven to be true in the case of Overstock’s digital dividend. The SEC notes that Overstock’s share price jumped from $16 to $27 per share before an announcement that trading restrictions around the digital dividend were being relaxed. After the loosening of restrictions was announced, the shares fell to $15.50.
Bryne is said to have made high profits as he liquidated his shares when the company’s stock was trading at its highest price. The former CEO is said to have sold shares worth over $102 million. Between the 16th – 18th of September alone, Bryne sold $91.98 million worth of stock from his private holdings. Bryne may have deliberately created conditions to inflate the company’s stock price and take advantage of the high prices by dumping his privately held stock.
Overstock withheld vital information
The lawsuit goes on to point out that Overstock did not provide investors with some information that would have lowered the value of its stock. It is said that this information was held back because the company sought to create a cash fund large enough to support its crypto projects after the company’s investment partner abandoned the projects. Investors have a right to be adequately informed before they make any decisions and Overstock allegedly denied them the information they were entitled to.