Overstock, an online retailer and the parent company of tZERO, has received two more subpoenas from the Securities Exchange Commission (SEC) in Dec. 2019.
According to Overstock’s 2019 annual report, filed on March 3, the SEC’s investigation into Overstock first started in Feb. 2018, when the agency requested the online retail giant voluntarily provide information on tZERO and its security token offering. As first reported by CoinDesk, Overstock received further requests from the SEC to turn in documents concerning its Series A-1 preferred stock dividend, Chinese private equity firm GSR Capital and its communications with former CEO Patrick Bryne.
As disclosed by the annual report, in Dec. 2019, Overstock was given two more subpoenas, one “related to the GSR transaction and the alternative trading system run by tZERO ATS, LLC.,” and the other “requesting [Overstock’s] insider trading policies as well as certain employment and consulting agreements.”
The fresh investigation efforts followed a strange sequence of events featuring a troublesome investment deal between tZERO and Chinese private equity firm GSR and a $90 million sell-off of company stock by its ex-CEO Patrick Byrne.
GSR Capital originally planned to invest over $400 million in tZERO when the two firms signed the initial agreement. However, it lowered the projected amount of funding to $100 million in March 2019 and then to $30 million a month later. When the deal finally closed in May, tZERO only received a $5 million investment commitment, missing its fundraising target by 98.7%. Following such a change, Makara Capital, which initially planned to invest $100 million in tZERO along with GSR Capital, decided to back off from the deal.
In another turn of events, Overstock’s CEO and CFO at the time, Patrick Byrne and Gregory Iverson respectively, resigned in Aug. and Sep. 2019. A month after his resignation, Byrne sold his entire 13.6% stake in the company for approximately $90 million. Shortly after Bryne’s sell-off, Overstock announced a lowered guidance for 3Q19, which led investors to question whether the ex-CEO sold his shares using insider information, The Block previously reported.
In fact, an investor filed a class-action lawsuit against Overstock as well as the two former executives in late Sept., accusing them of publishing false and misleading statements regarding the company’s financial performance.
According to the annual report, Overstock’s net revenue declined by almost 20% from $1.82 billion in 2018 to $1.46 million. The company attributed its unsatisfactory financial performance to the costly nature of handling litigations.
“Such litigation could be costly and time consuming and could divert or distract our management and key personnel from our business operations,” said the annual report. “Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of such matters could materially affect our business, results of operations, financial position, or cash flows.”
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