The state court of California has dismissed the lawsuit filed in 2007 against a number of prime brokers by Overstock.com, which accused prime brokers of participating in a massive illegal stock market manipulation scheme to distort its stock price. The share price of the firm had dropped by 77% in the two years leading up to the lawsuit, which the firm claimed was attributable to illegal naked short selling of its stock by the prime brokers.
The initial defendants in the $3.48 billion suit were Morgan Stanley & Co.; Goldman Sachs & Co.; Bear Stearns Companies, Inc.; Bank of America Securities, LLC; The Bank of New York; Citigroup Inc.; Credit Suisse Inc.; Deutsche Bank Securities Inc.; Merrill Lynch; Pierce, Fenner & Smith, Inc.; and UBS Financial Serviceswho at the time were said to control more than 80% of the prime brokerage market.
Overstock.com later narrowed the suit to just Goldman Sachs and Merrill Lynch. A statement on the Overstock.com Web site suggests seven of the previously named defendants paid us millions to let them out of the lawsuit.
The court says it dropped the case because Overstock was not able to prove any illegal conduct happened within the state of California, so it was out of its jurisdiction.
Overstock, however, claims Merrill Lynch Professional Clearing Corporations San Francisco office played a significant role in the fraud by facilitating manipulative trades, and that Goldman Sachs purchased a type of conversion trades that were part of the manipulative scheme which were cleared by Merrill Lynch Professional Clearing Corporation, according to a statement.
Jonathan Johnson, president of Overstock, says the firm will appeal the case as well as file a new case in another jurisdiction. Because the defendants have admitted their conduct took place outside of California, we intend to file suit in another state, Johnson says. We will also continue to try to unseal the pleadings in this case so that the public and press can review the underlying facts and make their own determination whether Goldman and Merrill manipulated the market in our stock.
Overstock has also tried to file claims against the brokers under New Jerseys racketeering laws.
Spokespeople for Goldman Sachs and Bank of America Merrill Lynch have declined to comment on the ruling, but a local newspaper, quoting an earlier statement by a Goldman Sachs lawyer, reported that the firm said it had not participated in any illegal activity.
(CG)