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Groundbreaking market manipulation case resolves favorably for Lubin Olson client Overstock.com

Lubin Olson has just completed a decade-long representation of Overstock.com, Inc. in its two California lawsuits where it sought to stop what it viewed as a broad effort by Wall Street banks and hedge funds to manipulate its stock via negative information and naked short selling. 

The first case was filed in response to negative reports published by a research analyst in coordination with a hedge fund shorting the company.  After defeating an anti-SLAPP motion, that case was resolved when the analyst apologized, and both the analyst and the hedge fund entered into monetary settlements.  The opinion of the Court of Appeals, Overstock.com, Inc. et al. v. Gradient Analytics, Inc. et al., 151 Cal.App.4th 688 (2007), is one of the most heavily cited opinions in the area of California defamation law. 

Lubin Olson filed the second, more recent case on behalf of Overstock.com and some of its individual shareholders for market manipulation under California Corporations Code Section 25400(a) and (b).   The defendants included Goldman Sachs, Merrill Lynch, Morgan Stanley, Deutsche Bank, Credit Suisse and others.  The claims alleged market manipulation by these brokers in their capacities as prime brokers and clearing firms.   Plaintiffs’ claims related to short selling, stock lending, “naked” short selling, and failures to deliver stock.

The case resulted in a ground-breaking California Court of Appeal opinion (Overstock.Com, Inc. v. Goldman Sachs & Co., 231 Cal. App. 4th 513 (2014)) finding that brokers, including clearing firms, can be primary violators of market manipulation statutes, followed by a settlement for $20 million dollars with Merrill Lynch after remand for trial.   Plaintiffs also successfully fought the sealing of defendants’ documents revealing the fraud.   Along the way, Plaintiffs also obtained early favorable settlements from the minor players in the scheme.  We believe that the result in this case is the highest settlement ever obtained from a clearing firm for market manipulation related to naked short selling.