Libel is alleged Company targeted by Overstock to sue
Arizona research firm claims defamation by Utah-based retailer
By Steven Oberbeck
The Salt Lake Tribune
Salt Lake Tribune
Article Last Updated:04/11/2008 11:35:56 PM MDT
Overstock.com Inc., the Utah-based Internet retailer that sells discounted brand-name merchandise, is facing a libel action by the research company that it is suing for allegedly driving down its share price.
Gradient Analytics Inc., of Scottsdale, Ariz., intends to file a counterclaim early next week in the legal dispute that will claim it was defamed by Overstock.com and its Chief Executive Patrick Byrne after it issued research reports that questioned the Utah company's financial performance.
"Public companies cannot have license to libel research firms and use litigation to retaliate against analysts who are critical of their business," said Gradient Chief Executive Brad Frost in a statement announcing the legal action.
Overstock.com sued Gradient in 2005, claiming the research company issued false and misleading reports to help the New York Rocker Partners hedge fund profit from selling Overstock.com's stock short - a technique that gives investors and speculators a way to benefit when a company's share price declines.
A California state court judge, who is= overseeing the dispute, gave Gradient permission to file its legal actions as a counterclaim earlier this week. Gradient is now waiting only for the judge to sign the formal order clearing the way for the counterclaim to be filed with the court.
"We expect the order to be signed early next week," said Gradient spokeswoman Karen Hinton.
Jonathan Johnson, Overstock.com's chief legal officer, however, said Gradient's action is "bogus" and something that will be beaten easily.
"Truth is a defense, and we can back up everything we've said about them."
Byrne was far less circumspect in his statements.
"These bullies have spent 2 1/2 years hiding in the locker room to avoid having to back up their words," Byrne said. "Now that they've been dragged by their heels kicking and screaming into the ring, they bounce up and begin pounding their chests."
Overstock.com contends that Gradient colluded with the New York Rocker Partners hedge fund to drive down its share price from a high of $77.18 in January 2005. And it went on to claim Gradient's false and misleading reports damaged its reputation and made it more difficult for it to raise investment capital.
Yet in February 2007, after a 16-month investigation, the U.S. Securities and Exchange Commission sent Gradient a letter stating that its own investigation had been closed without any enforcement actions recommended.
"We are strong believers in free speech," Frost said. "We believe our work serves an important function in the efficiencies and information flow in the equity markets. But the comments of Overstock and its CEO are of a different sort of flavor entirely."
Overstock.com's shares closed Friday at $13.16, up 35 cents for the day.
steve@sltrib.com
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