Overstock.com, Inc., an online retailer announces that it is going into digital currencies—and its stock rises more than 500% in five months. Is this a rise in real value? No, the complaint for this class action says, and alleges that the company was in violation of the Securities Exchange Act of 1934 because it did not disclose all material information related to its initial coin offering (ICO) and other affairs.
The class for this action is all persons or entities who acquired Overstock common stock between August 3, 2017 and March 26, 2018.
Overstock is an online retailer that also claims to be an “advancer of blockchain technology.”
During the class period, the company claimed that it would use blockchain technology to deliver shareholder value—in part through its Medici Ventures, which was meant to advance blockchain technology, and also through its tZero trading platform. In October 2017, the complaint claims, the company announced that it planned to hold an ICO of new digital coins based on the blockchain technologies of Bitcoin and Ethereum, in hopes of raising $500 million.
These announcements drove the company’s stock from $16.45 per share on August 3, 2017 to $86.90 per share on January 8, 2018, an increase of more than 500%.
However, to begin with, cryptocurrencies are being more highly scrutinized these days to determine whether they are actually unregistered securities. On March 1, 2018, Overstock announced that the Securities and Exchange Commission (SEC) had asked for information about its ICO. This news drove the company’s stock price down by 4.4%.
Two weeks later, on March 15, the company said that the SEC was looking into advisers at tZero and that the investigation “could result in a delay of the tZero security token offering, negative publicity for tZero or us, and may have a material adverse effect on us or on the current and future business ventures of tZero.” They did not mention that if the SEC declared the coins to be unregistered securities, their sale would be illegal.
In addition, it said that its Medici unit had lost $22 million in 2017, even though Bitcoin prices has risen by 1,375% over the same period. At this news, the stock fell by over 5%. According to the complaint, however, the company had known that Medici was “hemorrhaging money” much earlier and should have disclosed it then.
Ten days after this, the company announced that it would hold an offering of four million shares of common stock. Again the stock fell, this time by nearly 15%.