Overstock's wild ride continues as investors cry foul

Despite Patrick Byrne stepping down from his helm at Overstock over a month ago, the drama surrounding the name continues to play out like a soap opera. Following Byrne’s $90 million sell-off of company stock, the company has issued several disappointing press releases, leading many speculators to cry foul.

Sequence of events:

• Sept. 16-18 Byrne sells his remaining Overstock shares over a three-day period to the tune of $90 million
• Sept. 17 – Greg Iverson, Overstock CFO, resigns without a separation agreement
• Sept. 23 – Company announces Iverson’s resignation and lowers guidance for 3Q19
• Sept. 24 – Company files an S-3 automatic shelf registration, a similar play as last year before it sold 5.8 million shares in an ATM public offering

Between Sept. 16-18, Byrne sold his 4.7 million shares at an average price of $19.15 for a total of $90 million. In the midst of this, Greg Iverson resigned as CFO after only being with the firm for a year. The following week, the company announced Iverson’s departure, lowered guidance for 3Q19, and filed the mixed shelf registration. The stock declined 19% shortly afterward closing at $11.23 a share last Friday. Definitely a peculiar series of events. Many speculators were quick to ask probing questions:

• Did Byrne use insider information to sell his shares prior to the announcement of the bad news?
• Did management purposely hold back the bad news to allow Byrne to unload his ownership before the stock sank?

Almost on cue, Byrne released a detailed blog on his website in response to the accusations of insider trading. In it, Byrne denied having access to any material non-public information when he sold his shares. 

“On Thursday August 22 I said my goodbyes and left. In the announcement of my departure, I included an updated letter presenting my state of knowledge at that moment. The letter was thoroughly reviewed by all appropriate parties within the firm, and represented my precise state of knowledge on every front. Again, I wanted no one to have anything to gripe about later.

I emailed the execs and said I wanted to be sure no one sent me any information after that moment. I also told them that I was leaving for Asia, would on a boat sailing around an obscure part of Indonesia, and would be out of communication. I did all that so that no question of Material Non-Public Information could possibly be raised."

Byrne also noted that he had made clear his intentions to sell his stock well in advance, while also claiming that several people at Overstock were made aware of this decision:

"By August 18 my decision and instructions were that all shares were to be sold and reported by September 13 or September 18 (depending upon how that last legal issue was resolved). Again, I am sure that countless emails document all the good work done between Jones Trading and my personal office. Also, I can name seven people at the firm whom I informed of this plan: that I would completely sell all shares during the week before the no-div date, so they should not to be shocked when they saw it."

What makes this strange is that management explicitly said they had no "knowledge about his plans for holding or selling his shares" in their call to shareholders on Aug. 26. Although Byrne did not identify the seven individuals he revealed his plans to, it would be unusual if NONE of them were on the management team. The company also never explained why it waited an entire week to announce Iverson's resignation.

That being said, it appears Overstock's wild ride doesn't end here. Last Friday, a two-count federal securities fraud lawsuit was filed against Overstock, Gregory Iverson, and Patrick Byrne. We will continue to monitor the situation as it unfolds.