A complaint registered on September 27 in Utah alleges that Overstock (NASDAQ:OSTK), former company CEO Patrick Byrne and former CFO Greg Iverson were involved in securities fraud.
The suit was filed by Lewis Kahn, of Kahn Swick & Foti, a law firm based in Louisiana, on behalf of plaintiff Benjamin Ha and “on behalf of all others similarly situated.”
The complaint requests a trial by jury, noting that Byrne created Overstock’s digital token-based dividend to punish short sellers, which others have also alleged previously.
The complaint reads:
“While defendant Byrne had previously, at different times, launched into public tirades over short selling and naked short selling, the tZERO Dividend was his secret plot to finally obtain hegemony over them — and it almost worked.”
Overstock introduced a new dividend in July called “Digital Voting Series A-1 Preferred Stock,” which traded on the company’s blockchain-based platform. However, investors were not allowed to trade the dividend for six months. The complaint alleges that the dividend was issued in this manner in order to manipulate Overstock’s stock price.
“While shares traded to a Class Period high of $26.89 each on September 13, 2019, they traded to as low as $15.50 by September 18, 2019, three trading days later, after investors learned that the tZERO dividend was designed to be a short squeeze.”
After resigning from Overstock on August 22, Byrne sold his 13% stake in the company for $90 million.
The complaint accuses Overstock, Byrne and Iverson of violating Section 10(b) of the Securities Exchange Act, which outlines antifraud provisions of securities swaps. The court papers also allege that Byrne violated Section 20(a) of the Act due to his status as a large shareholder.
Iverson also resigned from his position at Overstock.com on September 17.
Byrne claimed that he left the company due to a scandal involving a relationship with a Russian spy Maria Butina and federal agencies.
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