Discount web retailer Overstock.com filed a $3.48 billion lawsuit in the Supreme Court of California on Friday. Overstock has accused ten prime brokers of participating in a “massive illegal stock market manipulation scheme” to distort its stock price.
The defendants are Morgan Stanley & Co., Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of America Securities, LLC, Bank of New York, Citigroup Inc., Credit Suisse Inc., Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and UBS Financial Services, who together are said to control over 80% of the prime brokerage market.
Overstock, whose shares are down 77%in the past two years, accuses the companies of naked short-selling and thereby artificially reducing the price of Overstock’s stock.
“These manipulative activities have caused tremendous damage to Overstock”, says Patrick Byrne, Chief Executive of Overstock. “I believe that this conduct is harming our company and our shareholders deeply.”
The lawsuit contends that the amount of stock that was improperly shorted has exceeded the company’s entire supply of outstanding shares. “It’s about rigging the system,” adds James Christian, Overstock’s attorney.
Last year Utah passed a bill that would have forced brokerages to report trade delivery failure in shares within 24-hours. However, following a threatened lawsuit in a Federal court by the Securities Industry and Financial Markets Association (SIFMA), the financial industry trade group in Washington, the bill will not be enforced until June.