Overstock chief says he has proof of plot

In recent weeks, Salt Lake-based retailer Overstock.com Inc.'s president, Patrick Byrne, has publicly dueled with two opponents — a research firm and a hedge fund — that he says are working together to drive down his company's stock so it can be taken over by an unnamed "bottom feeder."

Now Byrne is trying to back up his allegations with declarations from three former employees of a stock-research firm called Gradient Analytics Inc. He says the declarations support his contention that Gradient negatively adjusted its research on Overstock.com at the request of David Rocker's Rocker Partners LP, a hedge fund that has acknowledged taking a bearish short position in Overstock's shares. Shorts sell barred stock in the hope that the stock price will drop and they can return the loan and pocket the difference as profit.

The declarations from the three former Gradient employees are the latest in an increasingly heated and often weird stock-market battle. Even before the declarations have been filed with the court, they are under attack because two came from people who were fired by Gradient last year.

And while Byrne, who holds a doctorate in philosophy, has directed criticism at Rocker, there are other Overstock bears out there: Over half the available shares are accounted for by short-sellers, making it difficult for anyone else to borrow the shares to sell them short. That lack of shares has played into complaints made by Byrne and some of his supporters that Overstock is a victim of illegal "naked shorting," in which shorts are selling stock they haven't actually borrowed and are harming public companies, particularly smaller ones.

Bulls and bears frequent Internet chat rooms to duke it out over the stock and Byrne's stewardship of the company, and their postings run the gamut from gushing to vitriolic.

Probably nobody has been more outspoken than Byrne, whose company sells discount merchandise over the Internet. Through the first six months of this year, Overstock reported a net loss of $6.7 million on revenue of more than $316 million. Its stock price, which soared from the low teens in late 2003 to over $75 a share by late 2004, now is about $40 on the Nasdaq Stock Market.