Judge won't dismiss Overstock.com suit

A California judge refused to throw out Salt Lake-based Overstock.com's claims that Gradient Analytics Inc. conspired with Rocker Partners LLP to drive its stock price down.

Superior Court Judge Vernon Smith in San Rafael, Calif., tentatively denied Gradient's request to dismiss the suit under a California statute that protects companies from lawsuits aimed at stifling free speech. Overstock.com claims Gradient issued false and biased research reports about the company's stock to allow Rocker Partners to profit on trades.

The Securities and Exchange Commission has questioned three former Gradient employees about the allegations and subpoenaed journalists, including Dow Jones & Co.'s Herb Greenberg and CNBC's Jim Cramer, about the allegations. The agency has at least temporarily withdrawn the subpoenas after the commission's chairman said he would review the requests.

Smith said evidence submitted by Overstock.com, including a statement from a former Gradient employee, indicated Gradient may have "published 'special reports' in reckless disregard of the truth."

Karen Hinton, a spokeswoman for Gradient, which is based in Scottsdale, Ariz., said the claims are aimed at harassing Overstock.com's critics.

"We are confident that the right of free speech will prevail over the lies and misrepresentations of disgruntled individuals and issuers," said Hinton, in an e-mailed statement.

Overstock.com's Chief Executive Officer Patrick Byrne has complained that Gradient, hedge funds and journalists have conspired to spread negative information about his company to help short sellers reap profits when the stock falls. Short sellers borrow securities in hopes of making a profit by paying for it after the price drops.

Gavin Rooney, an attorney for Rocker Partners, owned by David Rocker, who is also named in the suit, told Smith that there's no proof Rocker made any false statements and the information that Rocker is claimed to have provided was based on opinions.

"Negative however is not false, negative information isn't misleading," Rooney said at the hearing. "Negative information doesn't meet the legal standing."

He declined to comment after the hearing, saying he would wait for Smith's final ruling, which the judge said will be released in a week.

Gradient was giving "pure opinion" in its reports that is protected by the Constitution, Susan Harriman, a lawyer for Gradient, said at a hearing Wednesday. The reports state "a conclusion that Overstock doesn't like — doesn't agree with — but it's the underlying facts that have to be proven false."

Shares of Overstock rose 30 cents to close at $22.80 Wednesday on Nasdaq.