Capital Markets

Hedge Fund Counterpunches Retailer

The short-selling fund responds to an allegation that it lied to drive down Overstock.com’s stock price with its own claim that the Internet compan...
Stephen TaubNovember 13, 2007

A hedge fund accused of manipulating Overstock.com’s shares has gone on the offensive.

Copper River Partners has filed a lawsuit against the online retailer, CEO Patrick Byrne, and a number of directors alleging that they made false statements and projections to boost the company’s stock price. The hedge fund, formerly called Rocker Partners, also asserts that the company launched a “deceptive and malicious campaign to silence” its critics, including members of the press and research firms.

The claim is a countersuit to an unfair business practices lawsuit Overstock filed in August 2005 against Rocker and several affiliated entities; David Rocker, who ran Rocker at the time; Marc Cohodes, who currently runs Copper River; and others. Overstock alleged that the defendants conspired to denigrate Overstock’s business for personal profit. Rocker had specialized in short selling, and Copper River describes itself in the suit as “short-biased.”

According to the countersuit, 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’s suit also asserts that Overstock has consistently lost money since its founding in 1997 and has never had a profitable year.

“They have tried to distract from Overstock’s persistent failure to attain the results the company itself projected through accounting gimmicks that present a deceptive picture of the company’s results of operations, and in some instances, represent highly questionable treatments” under GAAP, the lawsuit states.

Copper River disclosed that it began shorting Overstock’s stock in February 2004. It claims it and other investors have lost millions of dollars as a result of Overstock’s “manipulation” of its stock price and ensuing short squeeze.