Overstock.com sues Short-Seller Rocker Partners

Thursday August 11, 2005

Online retailer Overstock.com Inc. (OSTK) said on Thursday that it sued a hedge fund known for short-selling and an independent research group, claiming they conspired to denigrate the company's business for profit.

The lawsuit, filed in Marin County, California, accuses Rocker Partners and Gradient Analytics Inc. and several of their employees of collaborating on "tainted and malicious" research notes that the retailer said in the suit contributed to a steep decline in its share price.

"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 Gradient's tainted and malicious (research reports) Overstock's reputation and stock price have been greatly harmed," Overstock.com said in the lawsuit.

Overstock.com's shares are down nearly 44 percent from an all-time high of $77.18 reached in January 2005.

"Gradient knowingly serves as a shill" for Rocker Partners, Overstock.com said in the suit, which seeks an unspecified amount of damages.

The court was not immediately able to confirm that the suit had been filed.

Rocker Partners did not immediately return a call seeking comment.

Donn Vickrey, co-founder of Gradient Analytics, a Scottsdale-Arizona based independent research firm focusing on quality of earnings, said, "We haven't actually been served with the lawsuit. I have heard that there is a copy on Overstock's Web site. Obviously our attorneys will look at this."

Vickrey is also named as a defendant in the lawsuit.

Overstock.com said in the suit that Gradient is "closely aligned" with various hedge funds including Rocker Partners, which the retailer said has a significant short position in Overstock.com stock.

In a short sale, a person borrows stock and sells it, betting that the share price will go down so that the person can then buy it back cheaper and pocket the difference.

Overstock.com said in the suit that beginning around June 2003, Gradient issued some 58 research reports on Overstock.com, all giving the company low marks.

The retailer claims in the suit that Gradient received input from at least two Rocker employees -- founder David Rocker and partner Marc Cohodes, who are both named as defendants in the lawsuit. The company also charged Gradient with holding the reports to give Rocker Partners time to position its portfolio to benefit from the publication.

Overstock.com said in the suit that Gradient's reports were "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."

Overstock.com's shares were up $1.45, or 3.5 percent, at $43.47 in afternoon trading on the Nasdaq.

In its second-quarter report issued earlier this month, Overstock.com reported a net loss of $2.6 million, or 13 cents per share, wider than the year-earlier loss of $2.4 million or 13 cents. Revenue climbed to $150.6 million from $87.8 million.

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