In House - The FindLaw Corporate Counsel Blog

Did Overstock Investors Get Fooled in Bitcoin Frenzy?

Imagine you are general counsel of Overstock.com and you discover a legal problem that will put the company's stock in a tailspin.

Then imagine your compensation package is tied to the stock's performance. Now you have a dilemma: do you sell before you advise the directors?

Just kidding, SEC; we're talking hypotheticals here. Oh wait, the company just got sued for defrauding investors.

Bitcoin Frenzy Strategy

Overstock is already under in stock performance -- trending down in recent months. Now a new class action claims the company defrauded shareholders by using blockchain technology as "a thinly veiled strategy to take advantage of the Bitcoin Frenzy."

The plaintiffs allege Overstock tricked them into buying shares based on the Bitcoin promise. The company had announced plans to "raise up to $500 million in 'coin offering,' consisting of sales of new digital coies for proejcts based on the blockchain technology of the digital currencies Bitcoin and Ethereum," according to the lawsuit.

That announcement pushed Overstock up from $16.45 to $86.90 per share -- a 500 percent increase -- in five months.

"But the truth was that: (1) Overstock's coin offering was highly problematic and potentially illegal," the complaint said. Second, the lawsuit said, the company was hemorrhaging money.

Bitcoin Bomb

It's no coincidence that the market is in a bad place right now, including the tech sector. The day after April Fools, the stock market dove more than 750 points before rebounding to an overall loss of 459 points for the day.

In the first quarter of 2018, Bitcoin lost half its value. Researchers say it will fall another third this year.

Overstock shares have plummeted, too, especially after the SEC inquired about the coin offering. The plaintiff/investors want those losses back, but they will have to take a number.

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