Overstock Directors Throw Wreckage on the Legal Tracks

A typically nutty press release gurgled forth today from the corporate basket case Overstock.com. It celebrated a month-old court ruling tossing out a challenge to its junk lawsuit against prime brokers. (This is the suit that was so screwy that it led to the resignation of two directors.)

"This decision clears wreckage off the legal tracks, and we are eager as ever to continue discovery," said Jonathan Johnson, Overstock senior vice president of corporate affairs and legal.

But what Johnson and Overstock CEO Patrick Byrne did not disclose is that, at the same time that they were celebrating clearage of this legal wreckage, they were simultaneously throwing up legal wreckage -- to stymie discovery against their board of directors.

As I mentioned previously, the director defendants have recently filed a "special motion to strike" the counterclaim filed against them in another of Overstock's junk lawsuit barrage, this one filed against a Copper River Management (formerly Rocker Partners) and Gradient Analytics.

The filing of that motion stays all discovery.

Odd that Overstock, in updating the public on the status of its litigation, failed to disclose that rather pertinent bit of information. After all, if the "removal of legal wreckage" in the prime broker suit is significant enough to warrant issuance of a press release, shouldn't the "placement of legal wreckage" in the other junk lawsuit also warrant a release? Well, it's not odd, this being Overstock, but you know what I mean.

I've always marveled at Overstock.com's professed yearning to be dragged into court and forced to actually tell the truth, for a change, in its junk lawsuits. To me, nothing has epitomized the delusional character of this company and its management. Do they really believe the stock market conspiracy crap they put in those suits? Do they really want to see their famously unhinged CEO subjected to a grueling deposition?

Do they really think that their conspiracy fantasies will rescue them from the destruction they've wrought upon their shareholders? Overstock has lost three-quarters of its market capitalization in just three months. The stock, trading at about 9.50, closed at 39.13 on Oct. 31.

Do they really want to have their accounting given the once-over by the other side's lawyers and forensic accountants -- at a time when their accounting is the subject of a formal SEC investigation?

Above all, why did they wait until now to hype up this routine, and not unexpected, court decision? Did Overstock grasp at this old news to juice up its lagging share price?

Personally I'm delighted to see the suits go forward. I don't know about Copper River and Gradient, but the prime brokers can certainly afford the legal fees, and I weep for them not. The Street firms that have been sued are hardly choir boys, and it's nice to see them turn their legal weaponry on this malignant little company and not investors.

© 2007 Gary Weiss. All rights reserved.