A Utah federal choose has tossed out a lawsuit that accused Overstock ($OSTK) of market manipulation by distributing a ‘digital dividend’ of safety
A Utah federal choose has tossed out a lawsuit that accused Overstock ($OSTK) of market manipulation by distributing a ‘digital dividend’ of safety tokens to shareholders and repeatedly revising retail earnings steering upward to punish short-sellers.
U.S. district choose Dale Kimball granted two motions to dismiss the go well with on September 28, discovering that the digital dividend didn’t manipulate the market, and that the revised earnings statements have been protected by the Non-public Securities Litigation Reform Act. In his judgement Kimball stated:
“On the day that Overstock introduced the dividend, market observers acknowledged and publicized that the digital dividend would place brief sellers in a pickle by forcing them to cowl their brief positions to keep away from breaching pre-existing contractual obligations.”
The lawsuit was filed by Mangrove Companions Grasp Fund in September 2019, two months after Overstock, a former-online retailer-turned crypto retailer, introduced its digital dividend. The dividend airdropped ‘OSTKO’ safety tokens to Overstock shareholders at a ratio of 1 token for each ten shares.
Mangrove claimed that situations that prohibited the token’s sale till six months after distribution have been supposed to make it laborious for shorters to cowl their positions, and accused Overstock of engineering a synthetic brief squeeze.
The U.S. Securities and Trade Fee later launched an investigation into the actions of Overstock and its executives, subpoenaing paperwork in regards to the dividend, along with communications with the agency’s former CEO Patrick Byrne.
Choose Kimball dominated that Byrne’s “very public disdain” for shorters (he made quite a few disparaging feedback about them) was not related to the case as “there was a authentic enterprise objective for issuing the dividend.”
He summed up the lawsuit as “a basic try to plead fraud by hindsight.”
Talking to Legislation360, Byrne’s lawyer Robert Driscoll stated: “Federal securities legal guidelines don’t function funding insurance coverage and the court docket agreed.”