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Hedge Fund and Research Firm – sued by Overstock.com
As being known to everybody, Overstock.com is an online retailer selling various branded items at a discounted price. In 2005, the online retail company has filed a complaint against Rocker Partner – a hedge fund company and Gradient Analytics – a research firm, claiming that the mentioned companies had conspired to drag down Overstock.com’s share price.
Filed in Marin County, Calif., Gradient Analytics is allegedly being closely aligned with various hedge funds, which includes Rocking Partners. The complain further alleges Gradient for withholding publication of negative reports on Overstock.com that gives Rocker the time to adjust Overstock’s portfolio. The said negative reports of Gradient has been started in June of 2003 and has allegedly issued about 58 reports on Overstock.com over the period of two years.
Overstock.com claims that Gradient got some input from David Rocker, who was the founder of Rocker Partners, and Mark Cohodes, Rocker Partner’s portfolio manager. David and Mark are also named as defendant in the suit, and that Gradient has knowingly serves as an accomplice for the hedge fund.
Gradient is known to be publishing negative reports on Overstock.com for months before they got Rocker as a client, and Overstock.com alleges that it was because of Gradient’s report that the company’s stock price has been influentially dragged down from its January 2005 high of $77.18 to August 2005 price at $45.43.
According to Patrick Bryne, the founder and president of Overstock.com, that the company has been consistently growing and that its stock price is performing well in the market before the publication of the research. However, when Gradient’s publication began, the stock price lowered down and Overstock.com has reported a net loss of $2.5 million.
Just recently, Overstock.com had a press release by having Patrick Bryne, Chairman and CEO of Overstock.com said the he is pleased to publish the statement from Gradient Analytics. Gradient’s states that the research company now believes that, to the best of their knowledge, Overstock.com’s stated accounting policies did in fact conform with the Generally Accepted Accounting Principles or GAAP after them having reviewed all the SEC filings, relevant accounting literature, and all other information available to it. Gradient further states that they regret any prior statements about Overstock.com.
One of the Gradient’s prior report stated that certain Overstock directors including Allison Abraham, John Fisher and Gordon Macklin were not independent directors based on Gradient’s criteria in evaluating independence. However, according to NASD rules, those mentioned directors were independent. Because of this, Gradient extends its apologies to the family of Mr. Gordon Macklin regarding its observation concerning the suitability or his independence. Mr. Macklin has served with distinction as a past President of the NASD, was regarded as one of the pioneers in the financial industry, and was asked to serve on many corporate boards because of his expertise.
At present, Gradient has examined and improved their policies concerning how they communicate with clients, which includes hedge funds and the media. The research company acknowledges that Matthew Kliber - former Executive Vice President of Research was not responsible for any of Gradient’s research on Overstock.