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Overstock’s Ghosts Won’t Go Away as Stock Flirts With Decade Low

Jeran Wittenstein
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Overstock’s Ghosts Won’t Go Away as Stock Flirts With Decade Low

(Bloomberg) -- More than two months after its founder quit in a dustup involving an affair with a Russian operative, Overstock.com Inc. is still grappling with the fallout from his legacy.

The online merchant this week disclosed a subpoena from the Securities and Exchange Commission seeking information related to sales of shares by company insiders and its blockchain-based dividend. The disclosure, combined with disappointing financial results and a potential share offering, sent the stock down 17% to trade around the level it was during the depths of the global financial crisis in 2009.

It’s another chapter in a tumultuous period for a company that has never been immune to controversy. The stock has been bouncing around ever since the founder, Patrick Byrne, issued a conspiracy theory-tinged statement describing entanglements with the “deep state” and cooperation with law enforcement agents he called “Men in Black.” Byrne also said he’d been romantically involved with Maria Butina, a Russian operative jailed for failing to register as a foreign agent.

Byrne, who had been the company’s largest shareholder, severed ties on Aug. 22 and began liquidating his stake on Sept. 16, according to a regulatory filing. He sold nearly 5 million shares for about $90 million and said he aimed to invest the proceeds in gold and cryptocurrency.

Confusion about Overstock’s blockchain dividend helped send the stock to an 11-month high in September. Short sellers, concerned the security made it difficult to meet obligations to lenders, rushed to buy shares to cover their positions. Overstock later delayed the dividend, saying it would seek to register the security after initially indicating it would be unregistered and trade on a blockchain brokerage owned by a subsidiary.

“We are cooperating fully and we continue to have conversations with the staff to address any questions it may have,” Jonathan Johnson, Overstock’s new CEO, said on Tuesday’s earnings call.

Overstock said the SEC asked for records of communications with Byrne, who ran the Salt Lake City-based company for two decades before his departure. An Overstock spokesman declined to comment further.

In a 975-word blog post reflecting on the company’s third-quarter earnings Thursday, Byrne praised Overstock as “doing things of historic significance, which will translate into money if and when the blockchain revolution transpires.” He didn’t return an emailed request for comment.

The latest SEC inquiries follow others related to Overstock’s blockchain businesses. The last document request in that matter was made nearly a year ago, Johnson said.

On Wednesday, the lone Wall Street analyst covering Overstock cut his price target on the stock nearly in half. D.A. Davidson reduced its target to $25 a share from $48. Analyst Tom Forte, who remains bullish, cited the potential for dilution and reduced his financial estimates for 2019. While shares have bounced back about 7% from Tuesday’s plunge, they’re still down 39% since the end of 2018.

On the earnings call, Johnson addressed the company’s difficulties since he took over as CEO.

“I acknowledge this has been a trying quarter for our owners,” he said. “It’s good to have it behind us.”

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Chris Nagi, Richard Richtmyer

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