Overstock is declaring a dividend for its shareholders, but instead of paying out in cash or traditional stock, it's doing so in digital securities. Shareholders will receive one digital share in digital voting Series A-1 preferred stock for every 10 shares held.
The Series A-1 became the second tradable digital asset available to investors on the company's SEC-registered platform. The alternative trading system, PRO Securities, is backed by Overstock-subsidiary tZero and began listing the Overstock security OSTKO in June.
The company shared the news in a statement, saying the record date for the dividend would be Sept. 23. It's slated to ship to shareholders in mid November. After shareholders hold the assets for a period of time due to securities rule 144, they'll be able to trade the assets through a brokerage account established with Dinosaur Financial Group, LLC, a subscriber to the ATS, with clearing and custody provided by Electronic Transaction Clearing, a registered broker-dealer, and Computershare as transfer agent.
The Series A-1 hasn't been registered under the Securities Act of 1933, and according to the company, it doesn't need to be. Overstock said it plans to respect the holding time required by rule 144 and any trading will go through the brokerage account, which it says meets compliance standards.
It's legal and there is precedent for a public company like Overstock to declare a dividend and pay it in cash or stock, according to Jeffrey Bandman, securities law expert and Founder and Principal of Bandman Advisors. However, he said Overstock is innovating the approach by paying out in the form of a crypto asset token. As of now, Bandman said there are no red flags with the practice, and the level of detail the company has released at this point is standard. Still, Bandman said more details will need to be disclosed over time to ensure the process is compliant.