Nothing New Here, Just Selective Disclosure

What would be serious business for most U.S. public companies is routine, even humdrum at the corporate train wreck Overstock.com. Thus comes word today that Overstock committed a serious violation of SEC Rule 10b-5.

Reformed felon and corporate crime expert Sam Antar has the scoop in a blog post today.

On Feb. 12, Overstock issued a press release celebrating a minor turn of the screw in its junk lawsuit against Gradient Analytics, an independent research firm that dared to sue the company.

But Overstock "forgot" to mention that Gradient was countersuing.

That's what's known as "selective disclosure," a violation of SEC Rule 10b-5. Can't just release news favorable to you. Kind of obvious, you might think, but this is Overstock.

According to the SEC:

Section 10(b) of the Exchange Act and Rule 10b-5 proscribe, among other things, misstatements of material fact made in connection with the purchase or sale of securities. Information is material if there is a substantial likelihood that its disclosure would be viewed by a reasonable investor as having significantly altered the total mix of information available.

Right. Such as disclosing the latest news in your fave junk lawsuit and keeping out the stuff that don't look so good.

To make things worse, it seems that the market reacted favorably to the news, which it wouldn't have done if the Gradient cross complaint was disclosed.

I wonder if the SEC will react quite so favorably?

The feds should certainly take special notice, in their ongoing investigation of Overstock, because of the importance Overstock has attached in the past to a Gradient countersuit. (Thanks to John Lichtenstein for jogging my memory on that.)

Overstock put out a press release in March 2006 entitled, "Overstock.com to Gradient Analytics and Rocker Partners: Where's the Countersuit You Threatened?"

Here's the press release. CEO Patrick Byrne is quoted in the release as saying as follows:

Eight months ago Gradient and Rocker were thumping their chests threatening to counter-sue us. I said at the time that they would not because these miscreants could not survive the discovery a counter-suit would trigger. They still have not filed suit, and now, once again, they are doing whatever they can to stall the discovery process. I once again invite them to counter-sue, and let us move to discovery quickly.

So now both are countersuing, and Overstock does not view this as being as worthy of disclosing as its taunt.

Also notable is this: Instead of "welcoming" the countersuits, the legal papers on Sam's site indicate that Overstock is moving to quash the one from Rocker, which was filed some weeks ago.

Gosh, I thought Overstock wanted "discovery." What has this slimy little company got to hide (as if we didn't know)?

© 2007 Gary Weiss. All rights reserved.