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Overstock.com (Nasdaq: OSTK) is an online retailer headquartered in Cottonwood Heights, Utah, a suburb of Salt Lake City. Founded in 1997, it pioneered the online sale of surplus merchandise. The company is well-known for its association with CEO Patrick Byrne's allegations of a conspiracy of naked short selling, which he claims has hurt Overstock's share price.

Business model

Overstock.com was founded in 1997 under the name D2: Discounts Direct, and changed its name to Overstock.com in 1999. The company pioneered the sale of surplus and returned merchandise on an online E-commerce marketplace, buying the surplus inventory of at least 18 failed dot-com companies at below-wholesale prices. In recent years it has expanded to sell new merchandise.

Overstock went public in May of 2002 at an IPO price of $13. From December 2004 with a high stock price of $77, its price fell to as low as $14 in late 2006. The company has contended in a lawsuit that its shares have been depressed by naked short selling and not by the company's poor financial performance. For the fiscal year 2006, Overstock suffered a 6% decrease in overall sales and lost over $100 million on less than $800 million in sales.

Overstock.com says its main rivals are eBay, Amazon.com Marketplace and Yahoo! Auctions; however, Overstock's revenues, site traffic and marketshare currently lag far behind eBay and Amazon.

Roughly 60% of Overstock.com merchandise is sold on behalf of third parties participating in Overstock's Partner Program - which mostly includes wholesalers but includes some manufacturers, and smaller retailers that have standing business relationships with Overstock.com. Overstock's Partner Program began in 2000 and has over 700 partners. The remainder is purchased by or manufactured specifically for Overstock.com. Among their products are sells handmade goods produced for Overstock by artisans in developing nations. The company also purports to manage the inventory supply for other retailers, and says that it enables small retailers to purchase stock at below-wholesale prices.

In addition to its direct retail sales, Overstock.com has also offered online auctions on its website since September 24, 2004. The auction services include several features intended to enhance security, social networking and convenience. It has hosted charity auctions to benefit various causes.

After initially relying solely on word-of-mouth marketing from customers, the company turned to distinctive television advertisements featured German actress Sabine Ehrenfeld. These advertisements featured double entendres, as they talked about the "O" and the "Big O," which means both "Overstock" and calls to mind "Orgasm." Now these advertisements feature Briana Walker.

Anti naked short-selling campaign

The company has received attention stemming from CEO Patrick Byrne's battle against alleged naked short selling of his company's shares. Byrne has said that his company's shares have been attacked by what he describes as "miscreants" in the stock market. Critics maintain that Byrne is seeking to divert attention from Overstock's share price declines and failure to turn a profit.

Bloomberg columnist Susan Antilla, referring to what she described as Overstock's "bizarre" battle against naked shorts, said, "To make the point that naked shorts are behind the stock's decline, Overstock and its supporters use lawsuits, smear tactics and appeals to securities regulators."

Byrne sued a hedge fund, Rocker Partners, for libel, unfair business practices and tortious interference saying it colluded with a research firm, Gradient Analytics, in short-selling the company by paying Gradient Analytics to publish negative reports about Overstock.com and supplying pre-publication copies to Rocker. Petitions for Review by Gradient Analytics and Rocker Partners to the California Supreme Court were rejected in September 2007, allowing the case to continue to trial. Naked short-selling was not alleged in that suit. A Securities and Exchange Commission investigation of Gradient was dropped in February 2007.

Rocker Partners, renamed Copper River Management, lodged a counterclaim against Overstock in November 2007. The counterclaim says that Overstock and Byrne, "with the active and knowing participation, approval and ratification of the company's board of directors, have made false claims that the company was profitable when it was not; false projections that it would become profitable when it could not; baseless projections of future revenues that were not obtained; false statements that the company did not require additional capital; false predictions of success of new business ventures; and misleading mischaracterizations of the operation of the company's business and of its business prospects." Copper River also alleges that Byrne tried to silence critics by suing them, and by attempting to "threaten, bully and intimidate" them with "false accusations of wrongdoing and vicious personal slurs." The suit says that Overstock and specifically Judd Bagley, an executive, "also used electronic spyware embedded in emails and message board posts to spy on and intimidate Overstock's critics."

Byrne's campaign has been widely criticized, with New York Times columnist Joseph Nocera saying: "Except for a few fellow-traveling Web sites, where Mr. Byrne is viewed as a heroic figure, most people who understand the issue or have looked into it think it's pretty bogus." SEC Chairman Christopher Cox called abusive naked short selling “a fraud that the commission is bound to prevent and to punish.”

In May 2006, Overstock.com received a subpoena from the SEC, requesting information about the company's accounting policies as well as its communications regarding naked short selling. Though Byrne said in a press release that he "celebrated" receiving the subpoena, critics of the company viewed it as an indication of Overstock's mounting troubles. Herb Greenberg, a journalist with Marketwatch.com and CNBC, termed the response "feeble spin control."

Byrne was instrumental in passage of anti naked short-selling legislation in Utah that was repealed in February 2007. Repeal of the legislation led to tension between Byrne and Utah officials. A New York Times report stated that "Utah officials now feel they were snookered by the Overstock C.E.O." and that the affair had damaged Overstock's political influence.

In May 2007, Overstock.com disclosed in an SEC filing that Patrick Byrne had been personally served with an SEC subpoena one year earlier. Overstock had received a similar subpoena shortly before Byrne, and that subpoena was disclosed. The delay sparked controversy. The investigation of Byrne and Overstock is continuing.

In February 2007, Overstock.com launched a $3.5 billion lawsuit against Morgan Stanley, Goldman Sachs Group Inc. and other large Wall Street firms, saying the firms "have and continue to participate in a massive illegal stock market manipulation scheme" involving naked short selling. Nocera described the lawsuit as "ridiculous." John Coffee, director of the Center on Corporate Governance at Columbia University Law School, described it as "an extremely unpromising litigation," and said that Overstock "may quickly find out they bit off more than they can chew." Kerry Fields, associate professor of law and business ethics at the University of Southern California, said, "Byrne may be able to help set new law if he handles this right." However, Fields said, Byrne's "best approach now is probably to persuade the SEC, which continues to wander around the issue, or the government to serve subpoenas and let them decide whether or not his company was wronged."

Two members of the Overstock.com board of directors, John Fisher and Ray Groves, resigned in protest against the lawsuit.

AntiSocialMedia.net

In January 2007, it was revealed that Judd Bagley, an executive of Overstock.com, was responsible for AntiSocialMedia.net, an (initially) anonymous website which attacked critics of Overstock.com. These critics included journalists, individuals who had criticized Byrne, and a mortgage broker who had aided reporters and federal investigators by finding old documents on the web. One target is journalist and author Gary Weiss, who had criticized Byrne in his book Wall Street Versus America. At one point two Google ads had been purchased directing people who searched on Weiss's name to the site. Bagley had previously created similar websites which had been condemned as "crazy and profane attacks" and "conspiracy propaganda" at The Motley Fool, an online investing website.

Patrick Byrne initially expressed public support of the site. Following identification of Bagley as the site's owner, Byrne stated that the site "receives support from neither myself nor Overstock," but reiterated his support for the site on First Amendment grounds. Bagley also stated that the site is run independently of Overstock.com.

Bagley also engaged in what Misplaced Pages described as "inappropriate promotion... under a variety of names," evading a block, resulting in blocks on the IP addresses through which he directed his internet traffic, including one his ISP used to service 800 homes.

Departures from the board

In July 2006, John J. Byrne, the father of Overstock's chief executive, resigned from the board of directors, after a public airing of the elder Byrne's unhappiness with his son's crusade against naked short-selling. John Byrne told the Wall Street Journal in March that "I can't tell whether this jihad adds to the value of the stock or subtracts from it, but what it does is take from Patrick's time." He told the newspaper that his "headstrong" son has ignored his pleas to drop the fight.

On February 23, 2007, John A. Fisher resigned from the Overstock board of directors. This action, he said explicitly, was "precipitated by disagreement with the company's pursuit of the lawsuit against the Prime Brokers."

On May 24, 2007, Ray Groves likewise resigned from the board. In his letter, he too said this related "to the Company's prime broker suit."

Motley Fool analyst Seth Jayson suggested that the directors may have departed to avoid legal liability for the company's accounting or because of the actions of Judd Bagley, Overstock's director of communications. Bagley operates antisocialmedia.net, which attacks critics of Overstock.

Resignation of president

On January 2, 2008, Overstock announced that cofounder Jason Lindsey had resigned as President, COO, and as a Director of Overstock effective from December 31, 2007. Byrne said Lindsey had "played a decisive role getting back on track" after "I screwed it up a couple years ago". Overstock stock dropped to a four-year low following the announcement, which an analyst for investment bank Broadpoint Capital described as a "key loss". Before the announcement, the Overstock stock price had flattened in recent weeks after a steep downturn.

References

1. Deseret Morning News | Heights of livability in Utah?
2. ^ International Directory of Company Histories, Volume 75 (2004) Overstock.com
3. Where the Dot-Dead Wind Up
4. Overstocking in Afghanistan
5. Overstock.com, Press Release
6. What's With That Overstock.com Ad? Feb. 28, 2005
7. Oh! Oh! Oh ... It's Another 'Sally' Ad November 13, 2004
8. Overstock.com is pleased to introduce our new spokesperson, Briana Walker.
9. National TV Commercial: New Spokeswoman, Briana Walker - Live Better with Overstock.com
10. ^ Antilla, Susan. "Overstock Blames with Creepy Strategy" Cite error: The named reference "Antilla" was defined multiple times with different content (see the help page).
11. Page expired - MSN Money
12. Overstock's Campaign Of Menace February 25, 2006
13. SEC kills probe of Gradient February 14, 2007
14. Appeals court sides with Overstock.com May 31, 2007
15. "Copper River Files Countersuit Vs Overstock, CEO, Directors," by Carol Remond, Dow Jones News Service, 10 Nov. 2007
16. "Overstock.com drama spurs lawsuits," by Bethany McLean, Fortune, Nov. 28, 2007
17. New Crusade for Master of Overstock June 10, 2006
18. Floyd Norris, The New York Times (June 14,2007). "S.E.C. Ends Decades-Old Price Limits on Short Selling". {{cite web}}: Check date values in: |date= (help)
19. Overstock goes overboard May 10, 2006
20. Revisiting Overstock.com and Utah March 10, 2007
21. Company Byrne-d on probe report May 11, 2007
22. Appeals court sides with Overstock.com May 31, 2007
23. Overstock sues brokers Feb. 3, 2007
24. Overstock CEO reflects on Cramer debacle March 28, 2007
25. ”Overstock’s Suit Spurs Board Exit,” Bloomberg News Service, Feb. 24, 2007
26. “Overstock Director Groves Resigns Because of Broker Lawsuit,” Bloomberg News Service, Bloomberg News Service, May 25, 2007
27. ^ Mitchell, Dan. "Flames Flare Over Naked Shorts." New York Times, January 20, 2007, C1.
28. ^ Roddy Boyd, The New York Post (Jan. 2, 2007). "Overstock.com Lashes Out at Critics on the Web". {{cite web}}: Check date values in: |date= (help)
29. Weiss, Gary, "Wall Street Versus America," Portfolio Books, 2006, p. 206
30. Jayson, Seth. "The Worst Stock for 2007: Overstock." The Motley Fool, December 21, 2006.
31. Susan Antilla, Bloomberg News Service (Feb. 21, 2007). "Overstock Blames With Creepy Strategy". {{cite web}}: Check date values in: |date= (help)
32. Deseret Morning News | Misplaced Pages blocks users in Lehi neighborhood
33. Daily Herald - Misplaced Pages bans Lehi neighborhood
34. “Overstock.com chairman mulls stepping down,” the Associated Press, March 3, 2006
35. Letter to Patrick Byrne from John A. Fisher, Overstock.com SEC filing
36. Letter from Ray Groves to Patrick Byrne dated May 24, 2007, Overstock.com SEC filing
37. "Another Day, Another Departing Director," by Seth Jayson, The Motley Fool, May 25, 2007
38. Overstock.com, Press Release
39. "Overstock.com says co-founder Lindsey resigns," Reuters, Jan. 2, 2008
40. ^ Overstock.com At 4-Year Low On COO Resignation
41. Analyst Actions: Monsanto, Overstock.com, Murphy Oil, Digital River

External links

• Overstock.com
• Five-year stock price

• Companies based in Cottonwood Heights, Utah
• Companies based in Utah
• Online retail companies of the United States