Overstock.com adds libel to lawsuit

SALT LAKE CITY — Internet retailer Overstock.com Inc. has amended a lawsuit against people the company alleges are driving down Overstock shares, adding libel and other claims to an original complaint of unfair competition.

The Salt Lake discount retailer is suing Gradient Analytics Inc., a stock-research firm based in Scottsdale, Ariz., that has published critical reports on Overstock, and New York-based hedge fund managers Rocker Partners, along with executives at both companies.

The lawsuit, filed in a Marin County, Calif., state court in August, was amended Wednesday to include additional claims of libel, intentional interference and unfair business practices.

Overstock President Patrick Byrne has publicly accused Gradient Analytics and Rocker Partners of contributing to the decline of Overstock shares through biased research reports influenced by a fund that was short-selling Overstock's stock.

Rocker Partners isn't the only investor taking a bearish short position in Overstock's shares, but Overstock has filed affidavits from three former Gradient employees alleging Rocker asked the researchers to include "more negative information" in Overstock reports and to "downplay any positive facts." One of them also contends some reports were withheld for a time so Rocker could make trades in the stock.

In short selling, which is legal, traders sell stock they don't own but borrow. They wait for the share price to go down, and then return the loan and pocket the difference.

But Byrne has alleged Overstock is a victim of illegal "naked shorting," in which shorts sell stock they haven't actually borrowed in order to harm public companies.

In an unrelated complaint, Byrne said Thursday that it took investment bankers Morgan Stanley 50 days to execute an Aug. 8 order he placed for 25,000 shares of his company's stock.

Byrne released an e-mail from his broker recounting the troubles:

"The only answer we have obtained from the Morgan Stanley people when we repeatedly pressured them is this: 'You have to understand that this is an extremely hot stock,"' wrote the broker, who said it was "obviously not an answer that makes any sense; but an answer that was repeated time and time again as we made calls to the management at Morgan Stanley."

Morgan Stanley didn't immediate respond to a call Thursday from The Associated Press. Byrne said his father has had similar difficulty clearing a 200,000-share trade.